Construction workers build homes on a lot in Vaughan, a suburb with an active real estate market, in Toronto, Canada, May 24, 2017. REUTERS/Mark Blinch

Ottawa didn’t handle the near bankruptcy of Home Capital Group Inc. all that well.

The authorities behaved like it was 1996, the last time a Canadian financial institution failed. They said little in public, while reportedly doing all sorts of prudent things behind the scenes. Meanwhile, flimsy parallels to America’s housing meltdown spread through international markets via Twitter; the instant-messaging functions on Bloomberg data terminals; and the financial press, which appeared a tad too eager to cover a crisis.

It came a month too late, but someone in Ottawa finally explained in convincing detail why Home Capital could never be Canada’s “Lehman moment.” At a press conference on June 8, Carolyn Wilkins, the No. 2 at the Bank of Canada, laid out all the reasons why a national housing meltdown is so remote.

“It’s quite tempting to draw parallels” with the U.S., Wilkins said. Debt is high and home prices are off the charts. Yet, “at the same time, when you understand what really led to the severity of the financial stress in the U.S., which actually went global in 2008 and 2009, it was related to a number of factors that are not present in Canada,” she said.

None of what Wilkins went on to say was revelatory. But she and her boss, Stephen Poloz, apparently thought it needed repeating. Poloz took the inevitable question about the U.S., and then handed off to Wilkins, who had come with notes on the subject. The list of factors that make Canada different from the U.S. in 2006 and 2007 is long, and Wilkins evidently didn’t want to forget one.

Those factors: American lenders were giving money to anyone, whereas Canadians must do much more to prove they can afford their payments; delinquency rates in Canada are extremely low; and Canadian laws punish anyone who tries to walk away from a loan, meaning “households have a greater incentive to hang on,” Wilkins said. Finally, there is none of the wild financial engineering that Wall Street undertook to profit off America’s housing mania at the turn of the millennium. “We have much less securitization,” Wilkins said. “It’s public and it’s plain Jane.”

The occasion for the press conference was the release of the Bank of Canada’s twice-a-year Financial System Review (FSR), an increasingly readable document that the central bank uses to flag weak spots in the circulation of cash and credit. Canada’s chief economic stewards remain concerned about debt and home prices in Greater Toronto and Vancouver. They say there is a “moderate” risk that housing prices in those places could drop abruptly because values long ago broke their tether with fundamentals. Yet, if that came to pass, the central bank thinks the damage would be regional, not national.

That conclusion is based in part by the recent experience of Alberta, where home prices sunk after oil prices collapsed. Canada’s big banks have binged on mortgages as much as anyone, but they aren’t one-trick ponies. Their various sources of income allowed them to treat Alberta’s troubles as a local issue, leaving borrowing standards unchanged for everyone else. The big banks represent an important buffer. As of the first quarter of 2017, the total value of all mortgages in Canada was about $1.5 trillion. A little more than half of that debt is insured, according to the FSR. That leaves a big chunk uninsured, and on the surface looks like cause for alarm. But most of that uninsured debt is held by one of the six biggest banks or a credit union. A mere 5 percent is owed to smaller banks and non-bank lenders. “Unlike the United States before the crisis, the portfolios and business lines of large banks are well diversified, and stress tests suggest that banks have adequate capital and liquidity buffers to weather a large house price correction,” according to the FSR.

Usually, the Bank of Canada doesn’t mind extra emphasis on what could go wrong. It has no regulatory authority over banks and other market participants, so psychology is the only lever it can pull when it doesn’t want to raise or lower interest rates. It publishes the FSR to make sure investors and regulators are paying attention to all the things that could go wrong. That’s why I’m sure the central bank won’t mind someone pointing out the one way that Canada resembles pre-crisis America.

In the years before Lehman Brothers Holdings Inc. went bankrupt in 2008, Americans turned their houses into cash machines. They borrowed against the rising values of their homes to renovate, buy cars, and purchase more property. The economists Atif Mian and Amir Sufi, whose work I referenced a couple of times recently (here and here), say the surge in home-equity loans factored into the pain that followed. Poorer borrowers couldn’t resist the temptation to finance material desires, blowing up the notion that owning a home is akin to forced savings. When prices collapsed, so did demand because too many consumers were stuck with debts worth more than their assets. Mian and Sufi argue that it was this “demand shock” that triggered the Great Recession, not the collapse of Lehman and other lenders.

Well, Canadians aren’t so different than their American cousins. The Financial Consumer Agency of Canada on June 7 released a study on the country’s newfound love of home equity lines of credit, which often are referred to by their ugly acronym, HELOCs. Their use has increased by 40 percent since 2011, according to the financial consumer agency. That is exactly the kind of rapid increase in debt that tends to precede a recession, according to Mian and Sufi. The agency commissioned a survey that found 720,000 families would struggle to make payments on their home-equity loans if interest rates rose by a mere 0.25 percent, and almost one million would be in trouble if borrowing costs rose a full percentage point. “The product’s characteristics may increase consumers’ vulnerability to over-borrowing, debt persistence and wealth erosion,” according to the financial consumer agency’s report.

When parallels are drawn with the U.S. housing collapse, it’s more that the emphasis is misplaced, not that the comparison is invalid. It would take a lot to topple Canada’s banks, and the country’s housing bubbles are too concentrated to trigger a national calamity. But there is a very real risk that Canada is facing the same sort of stagnant-to-barely-mediocre economic growth that the U.S. has endured for much of the past seven years. Like America before the recession, Canada’s post-crisis economy runs on household debt almost exclusively. A credit binge can help an economy burn hot for a while, but it never lasts.

]]>https://www.macleans.ca/economy/economicanalysis/a-national-real-estate-crash-isnt-in-the-cards/feed/4Why 2016 is shaping up to be a bad year for Canada’s bankshttps://www.macleans.ca/economy/economicanalysis/why-2016-is-shaping-up-to-be-a-bad-year-for-canadas-banks/
https://www.macleans.ca/economy/economicanalysis/why-2016-is-shaping-up-to-be-a-bad-year-for-canadas-banks/#commentsTue, 05 Jan 2016 13:09:55 +0000http://www.macleans.ca/?p=806975If the oil crash and housing slowdown were not enough, banks now face their Uber moment

The price of oil has tanked and took the loonie with it. The housing market is nervous. Government finances are crumbling and our exports are a mess. The poor performance of Canada’s economy over the last year has been unsettling for a nation that, only a few years ago, was feted for its resilience. So the news in December that a key economic pillar remains strong must surely have put many a worried mind at ease. That’s right, the banking oligopoly that has squeezed and gouged us for decades on its way to multi-billion-dollar profits and bloated bonuses had defied expectations and enjoyed another blockbuster year. Hooray?

Canadians have a complex relationship with their banks. When not grumbling about soaring ATM fees and other charges, the fine print on their mortgages or long waits on hold to speak to a human, we’ve also learned from recent experience in the U.S. and elsewhere to appreciate the stability of this country’s financial system. Just recently I overheard this snippet of conversation from a table of boisterous seniors at McDonald’s:

—“I keep hearing there’ll be a downturn.”

—“That’s not going to happen, the banks are too strong.”

If only it were that simple. The reality is the banks face a perfect storm in the coming year. For one thing, the latest results from the banks masked deeper problems. Slowing growth and rising expenses have already eaten into earnings, forcing the banks to cut and restructure their businesses. In the last quarter, for instance, CIBC shed close to 200 jobs, RBC axed around 500 and TD ditched 800. The banks are shuttering locations and scaling back their operations.

At the same time, the banks’ consumer and commercial customers are having a tough go of it. Two sectors have propped up the Canadian economy, and hence bank earnings, in recent years: energy and real estate. The full effect of the commodity crash and ensuing oil rout is likely only to be felt in 2016, as awareness finally sets in that a quick rebound in prices isn’t in the cards. Meanwhile, even though the Toronto and Vancouver housing markets continue to defy gravity, other markets are struggling. Even the Canada Mortgage and Housing Corporation, the taxpayer-backed insurer that guarantees mortgage lenders against losses and has consistently been bullish on the housing market, has begun warning of a correction.

The banks have weathered commodity crashes before. And taxpayers have, to some extent, got the banks’ backs through CMHC should things go bad in housing. (You’re totally welcome, guys.) Yet, against this backdrop, Canada’s banks are also in the early stages of their own Uber moment. In the same way technology upstarts kneecapped industries as diverse as news media, movies, music, cable, hotels, retail and taxis, a swarm of so-called “fintech” companies are lining up for a slice of the global banking sector’s fat profit margins. Apple, Google and Facebook are among them. So are myriad companies you’ve never heard of, all keen to handle your payments, money transfers, portfolio management and lending needs. As one bank watcher, National Bank Financial analyst Peter Routledge, described it in a report this past fall, unconventional rivals pose “a long-term and dangerous competitive threat” to Canada’s banks.

The Canadian banks are keenly aware of what’s at stake, and have been investing heavily to shore up their defences. But the question of whether technology will upend Canada’s banks will come down to two starkly opposite realities. On the one hand, many a foreign banking giant has been humbled by attempts to pry open the stranglehold Canada’s banks have on the domestic market. On the other hand, we have yet to see a cloistered industry, no matter how rich and powerful, successfully outmanoeuvre and outsmart these new breeds of innovators.

How the banks fare in the year ahead will be something every Canadian should watch closely. The “big five” is an outdated moniker. “Gargantuan” or “mammoth” would be better adjectives. The assets held by Canadian banks have ballooned in size over the last decade.

Some of that growth came through acquisitions outside the country, but a large part of it was due to the housing boom and the explosion in residential mortgages, lines of credit and other loans over the last decade. To put their size in perspective: the combined assets of the five largest American banks is equal to about 50 per cent of U.S. GDP; in Canada, the total assets of the big five are now more than twice the size of Canada’s economy. In short, Canada’s biggest banks are far larger, relatively speaking, than the too-big-to-fail institutions that crippled the U.S. economy during the financial crisis.

A full-on repeat of that crisis here is unlikely. Canadian banks are even better capitalized than they were seven years ago. Yet it’s also true the banks face an existential threat unlike anything they’ve confronted before. If consumers are lucky, it will be manageable enough for all the banks to pull through, yet punishing enough that we end up with more competition in the sector—and the lower fees, better choice and more convenience that come with it.

]]>It’s time for a little Canadian tech news today, as Ottawa-based Shopify gets ready to trade on the NYSE and the TSX, after raising more than $130 million in their public offering yesterday.

Meanwhile, today is all about the minutes from the latest U.S. Fed meeting, and jobs. Yesterday’s minutes from the U.S.’s latest monetary policy meeting showed Fed Reserve officials had ruled out a June rate hike, which was initially predicted when 2015 began with a surge of optimism. Now, analysts have been predicting the hike could come in the autumn, or even later, but the Fed is still waiting for signs that the labour market has truly strengthened, and the most recent numbers have been unclear. The dollar was down this morning on the news.

Today will bring weekly jobs numbers for the U.S. (initial and continuing claims), which could add more weight to this delay, as well as March’s Employment Insurance numbers for Canada. Elsewhere, this morning has brought surprisingly strong retail numbers for the U.K., and steady manufacturing numbers for the eurozone, at 53.4 (50 separates growth from contraction for PMI.) The Bank of Japan’s two-day monetary policy meeting also begins today.

Meanwhile, the corruption scandal over the Brazilian state oil company is reaching new heights as the country’s congress said they would exhume the body of a key player in the scandal, on suspicions he had faked his own death. The politician is said to have died five years ago from heart disease.

In B.C., the provincial government signed a deal with Pacific Northwest LNG over plans for a liquefied natural gas plant on the northwest coast, which is backed by the Malaysian state oil company. The deal would still need to pass through the legislature, and has been denied Aboriginal consent by the Lax Kw’alaams.

Today is also my last day with the Playbook! It’s a sad day indeed, so let me wrap up with (one of) my favourite topics, given that bad bankers and ridiculous tech-lingo will be covered below. Today, the fate of Greece will (once again) be discussed at the latest EU meeting in Riga, Latvia, but hopes for a sudden resolution are not high. Early next month, the country faces another debt payment of over 300 million euros, to the IMF, and the government has already said that without the EU releasing bailout funds, they cannot pay.

Shopify shares start trading today. The Ottawa-based tech company, which makes online stores for businesses, will begin trading in both New York and Toronto today. Yesterday, the company raised more than $130 million in shares, which were substantially oversubscribed and more highly priced than the company initially indicated. Shares went for $17 a pop, valuing the company at about $1.26 billion. It was a good day for one of Canada’s bright tech stars, which began in Ottawa after its German-born founder needed a place to sell snowboards online, and ended up marketing the software for the online shop he created. The Globe has this guide to what you should know about the company, which has seen rapid revenue growth, with retailers in 150 countries and an expansion to providing software for physical stores as well as digital ones, but the company is still losing money. Are there more Canadian tech IPOs to come? Perhaps – Shopify has been repeatedly touted as the front-runner in a bustling group of Canadian tech companies, and 2015 has been called the year of the tech public offering.

Wall Street’s short memory. It is impossible to write about finance or business any day of the week, even seven years after the crisis exploded, without writing in the shadow of the financial crisis. When we talk about ultra-low interest rates, when we talk about quantitative easing, when we talk about mortgage prices or debt or sluggish recovery or fines and regulations for banks: it’s impossible, or at least it should be, to forget the lessons and the legacy of the global financial implosion. Unless, that is, you’re on Wall Street, or so Jason Kirby’s latest column in Maclean’s argues. The S&P 500 hit another record high this week, and Kirby racks up the results of a study showing bankers and traders may not have acquired a uniformly robust moral compass in the years since. (The Upshot breaks down more of the data on Wall Street’s rebound here.) Today’s news brings even more arguments to the table, as six banks settle for $5.6 billion in fines from regulators over the Libor scandal, in which foreign exchange traders at multiple international banks in London allegedly colluded over chat rooms to rig the set rate for a crucial interbank exchange rate (known as the Libor). One particular chat from a Barclays trader included this rallying call: “If you aint cheating, you aint trying.” It’s not the only market that was rigged – the interest-rate ISDAfix was also manipulated. Let’s take a moment and recall that this scandal happened after the financial crisis – from 2007 up to 2013, officially – when the horrendous fallout of bad behaviour was supposed to have made things like wanton rigging of major currency markets passé, or at least very clearly illegal. Meanwhile, even as global banks have faced stress tests and capital requirements from regulators in the major economies (including the U.S.), the head of the Senate banking committee in the United States has proposed easing the Dodd-Frank regulations on banks enacted in 2008, which would free several smaller banks from these regulatory restrictions. Conveniently, this particular senator has close links to a lobbyist for one of the banks that would benefit. In London, HSBC, one of the world’s largest banks (and recently subjected to investigations into allegations they helped clients avoid taxes using Swiss bank accounts) said banking regulation had become so onerous it would consider leaving the U.K.

The bumpy road to getting rid of the boss. When you think about a company without bosses, do you see a heavenly workplace, full of communication, independence, and personal growth? Or do you envision a fiery hell of disorganization and never-ending meetings? The no-boss method, called “holacracy” in tech-world lingo (or a “commune” in everyone else’s), is being taken up by companies, with mixed results: at the online retailer Zappos, which is owned by Amazon, more than 200 employees have left since the experiment began, and even supporters say there are a lot of bumps in the road, as managers are eliminated and replaced with self-governing “circles.” One of those bumps includes a whole different language, which comes with a laminated glossary and an excessive need for translation into normal human speech. (I would compare even the brief samplings in this WSJ story to corporate gobbledegook, on steroids.) On the other hand, the idea of non-hierarchical companies and organizations isn’t such a radical one: in Scandinavia, “flat” management and communal-style working has been standard for years. The challenge – or perhaps, the opportunity – here might be what happens when the classic Nordic style of low-key communalism meets the surrealist comedy of Silicon Valley.

Barely two days after the 2008 presidential election swept Barack Obama into the White House, and with the stock market wobbling from the unfolding financial crisis, right-wing radio host Rush Limbaugh outlined what would become of one of the most enduring and widely held views about the Obama presidency: that the new guy would put a bullet in American-style capitalism. “The Obama recession is in full swing, ladies and gentlemen,” Limbaugh warned his listeners on Nov. 6, 2008. “Stocks are dying, which is a precursor of things to come. This is an Obama recession. Might turn into a depression. He hasn’t done anything yet, but his ideas are killing the economy. His ideas are killing Wall Street.”

More than six years later, let’s tally up the ruinous fallout from Obama’s assault on poor, put-upon Wall Street. The S&P 500 stock index, which is up 120 per cent since election day in 2008, hit another all-time high this week. An analysis by the New York Times’ Upshot blog shows the big banks are as back to being as big and profitable as they’ve ever been. Wall Street compensation has more or less recovered to pre-recession levels. Meanwhile, the pace of mergers and acquisitions is at a level not seen since before the Great Recession, showering huge bonuses on investment bankers. In other words, far from being killed, Wall Street is killing it.

Nor does it appear Wall Street was in any way chastened by the crisis it helped to cause. A new report released this week suggests many on Wall Street take an increasingly malleable view of ethics. Stemming from a survey by the University of Notre Dame of 1,200 bankers, traders and hedge-fund employees in the U.S. and the U.K., the report found:

• Roughly one-third of those in the industry earning $500,000 annually said they had first-hand knowledge of wrongdoing;

• Nearly one-quarter believe fellow employees have engaged in illegal or unethical activity to gain an edge, a figure nearly double what it was when the survey was conducted in 2012;

• One in four respondents would use insider information if it would make them $10 million and there was no chance of being arrested.

How, in the span of less than seven years, did we go from a situation where it appeared to many people—on both the left and the right—that Wall Street’s number was up, to the present, when the Street is enjoying remarkable success? For one thing, far from being tough on the Street, the Obama administration took a kid-glove approach to the industry for years, believing—as those in the White House who were friendly to the banks advised—that going after the industry in court would threaten an unsteady economy. To that end, justice officials made a point of pursuing settlements with institutions, rather than pursuing criminal charges against people. Indeed, no major figure from the era of fraud and excess—which plunged the world into recession and cost the U.S. economy up to $14 trillion—has ever been prosecuted, so no one has been held to account. Even Dick Fuld, the former chief executive of collapsed investment bank Lehman Brothers, is back on the speaking circuit this month, rehabilitating his reputation. The penalties we have seen slapped on the banks in the past couple of years—such as the record $13 billion JP Morgan Chase agreed to pay for its role in selling garbage-quality mortgage-backed securities to investors during the U.S. housing bubble—have, in fact, had minimal impact on their enormous bottom lines. And let’s face it: As penalties go, these settlements are akin to punishing the family dog weeks after it pooped on the rug.

Wall Street hasn’t completely gotten its way. The 2010 Dodd-Frank law, a package of reforms targeting the industry, has, among other things, forced banks to reduce their exposure to risk, which the industry insists will slow economic growth. However, the law’s future remains uncertain, with Wall Street’s lobby machine working hard to declaw it: According to Americans for Financial Reform, the industry spent $1.4 billion in the 2013-14 election cycle, and has found some success, such as measures that impose restrictions on regulators.

Finally, Wall Street can offer some thanks to the Federal Reserve for the banks’ winning ways. Policies such as quantitative easing and the seemingly never-ending era of low interest rates have ultimately inflated asset prices, encouraged consumer borrowing and revived deal-making. The benefits to Main Street have been muted—job growth and wage gains have been slow in coming—but Wall Street still has more to gain than to lose from low rates.

Will Wall Street keep on winning? Who’s to say? But if the last seven years have taught us anything, it’s that predicting the end of Wall Street is a losing bet.

This morning, HSBC is in the hot seat once again, with an earnings report that came up billions short of expectations, amid ever-growing controversy over the use of secretive Swiss accounts by the bank (and its CEO). It doesn’t help the bank is also paying off massive fines for its last scandal, involving currency rigging in London forex offices.

In Canada, banks are on the agenda as well, with first-quarter reporting for the country’s big six beginning tomorrow, and there’s also big news in the pharmaceutical industry over an acquisition by Quebec-based Valeant. Greece, as ever, remains on the agenda: after a nail-biter of a deal between the country and its creditors on Friday, markets sprung a relief rally: both the Dow and the European FTSE 100 hit new records. But the drama could still blow up: the country still needs to get its reform proposals approved today.

The loonie goes into the new week sitting right under 80 cents once again, after retail sales over the holiday season had their largest one-month drop in five years, despite low oil prices. Over the course of this morning in Europe, the price of oil (West Texas Intermediate) has dipped under $50 again.

In other economic news, the governor of the Bank of Canada will make a speech tomorrow, and on Thursday we’ll get the survey of payrolls, employment and hours, as well as inflation numbers for January. Tomorrow will also see the Federal Treasury’s Janet Yellen address the Senate Banking Committee, and there will be a clutch of inflation statistics from the eurozone, as well as fourth-quarter GDP from the eurozone’s brightest economies, the U.K. and Germany. Chinese markets are shut until Wednesday for Chinese New Year holidays.

HSBC feels the burn. The bank, Europe’s largest by assets, announced its profits this morning, and the response was not good: gross profits were at $18.7 billion, a 17 per cent fall from the previous year, and a few billion less than general expectations by investors. As of this morning, shares have already fallen by more than five per cent. The announcement was made by the company’s chief executive, who over the weekend became another twist in the ballooning scandal over the company’s past efforts to help clients dodge taxes using shell companies and secret Swiss accounts. In a Guardian article, it was alleged that Stuart Gulliver, who has pledged to clean up the culture of the bank, was himself using both a Panamanian shell company and a Swiss account to evade taxes on his multi-million-dollar bonuses. Gulliver also has “non-domiciled tax status” in the U.K., which means that though he works in London, he “officially” lives in Hong Kong. While the Swiss scandal is recent, the bank also had to account for fees and settlements as part of a previous scandal, where London foreign exchange traders were found to be colluding to set exchange prices. The bank paid out almost $1.2 billion in fines and settlements, and set aside almost $1.25 billion in compensation for UK customers who were impacted.

Canadian banks prepare to report first-quarter earnings. But the expectations aren’t entirely optimistic. As banks began warning last year that they expect to see profits weaken in 2015, since then, oil has dropped still further, and the Bank of Canada has cut the benchmark rate to 0.75 per cent. Both have hurt banks’ bottom lines, analysts warn, with the oil rout undercutting a valuable source of profits in the form of major mergers and IPOs, and lower returns for borrowing. Tomorrow, BMO will start reporting season, followed by RBC and National Bank on Wednesday, and CIBC and TD on Thursday. Scotiabank will report next week.

A big buy for pharmaceutical company Valeant. The Quebec-based company purchased – in cash – an American pharmaceutical company known for making “gastrotechnology drugs” (otherwise known as drugs to treat irritable bowel syndrome). The cost for Salix was more than $10 billon, after Valeant beat out two Irish competitors. The company is known for a failed attempt to buy Allergen, known for making Botox, last year. Valeant is often described as using its Canadian location and an “advantageous tax structure” to aggressively acquire companies and then cut costs, including research and development.

Greece has yet another deadline. After a sigh of relief from across the eurozone over a Friday agreement between the country’s new government and the European creditors, Greece is facing yet another deadline. The government has to present proposals for reform by tonight, which then must be approved by the EU and IMF. If they’re not, the eurozone finance ministers are back at the table again tomorrow in Brussels. The ultimate deadline is looming: the bailout will expire this weekend if another solution isn’t approved. Potential bumps could come from concerns by finance ministers that the reforms do not include sufficiently detailed breakdowns of costs, and rumblings from within SYRIZA that any changes to the original 172-billion-euro bailout terms have been largely semantic, not substantive.

The Ukrainian currency is crashing. The hryvnia has not been looking good for a while, even after another agreement for an emergency bailout from the IMF, but this morning the currency has fallen a full 10 per cent on fears a shaky ceasefire won’t hold up. That’s a new low against the U.S. dollar for the currency. On optimism over the ceasefire, the Russian ruble seemed to be rallying last week but now it, too, is falling, as yet another ratings agency downgraded the country’s sovereign bonds to junk status.

]]>Canadians are missing billions, and no one seems to carehttps://www.macleans.ca/economy/money-economy/canadians-missing-billions-and-why-no-one-seems-to-care/
https://www.macleans.ca/economy/money-economy/canadians-missing-billions-and-why-no-one-seems-to-care/#commentsFri, 04 Jul 2014 01:36:31 +0000http://www.macleans.ca/?p=577559You may be rich—if only you could find those long-lost investments

According to the Canadian Press, there could be anywhere from $4 billion to $7 billion in unclaimed assets sitting in accounts right now.

The Bank of Canada alone is holding nearly $1 billion from bank accounts and Canada Savings Bonds, but experts estimate unclaimed assets across the country could top $4 billion to $7 billion.

Canada is way behind other developed countries in having comprehensive unclaimed property legislation for all its residents, says accountant Brenda Potter Phelan.

“A country so progressive, so socially minded as Canada, I find it hard to stomach that we don’t have some safeguards. In the U.S. and around the world they find this a main part of consumer protection,” she said from Cambridge, Ont., where she runs a website and blog called Legacy Trackers.

Four years ago I looked into the epidemic of misplaced money. It’s not just a case of forgotten bank accounts and savings bonds. Many people have also lost track of investment and mutual fund accounts. For a variety of reasons, from a fragmented investment industry to outright apathy on the part of regulators and firms, there is simply no easy way to reunite people with their loot. Here’s that story, originally published June 21, 2010:

Buy, hold and forget?

You may be rich—if only you could find those long-lost investments

It’s not every day a stranger calls to say they’ve got a sum of money waiting for you to collect, and when it does happen, it’s almost certainly a scam. So when a woman from a Toronto investment firm phoned Cindy Grauer last year and told her she was eligible to reclaim a mutual fund account she didn’t even know existed, alarm bells went off. But after cautiously confirming her identity, Grauer learned both the caller—Alison Pettigrew, a customer relations manager from Front Street Capital—and the fund—a straggler left over from a 20-year-old investment account—were for real. Then came the stunner. “Are you sitting down?” Pettigrew asked. After two decades orphaned on Bay Street, Grauer’s small initial investment had exploded to a healthy five-figure sum. “It’s like winning the lottery,” she says. “But how could something like this happen? It’s outrageous.”

It’s one thing to pursue a buy-and-hold investment strategy, but it’s not supposed to be buy, hold and forget. Yet over the decades many Canadians have lost track of some of their investment assets, whether through negligence or simple absentmindedness, a risk that’s likely to increase with an aging population. But while no one knows how much is sitting unclaimed in mutual funds, stocks, bonds and RRSPs—millions? billions?—there’s no easy way for investors to hunt down their forlorn funds. Nor do government and industry show any interest in doing much about it.

Grauer’s case shows how easily investments can go astray. In the 1980s she had a brokerage account with Pemberton Securities, which she closed at the end of the decade and moved elsewhere. But in the transfer, Pemberton overlooked one mutual fund. The firm was later acquired by Dominion Securities, which in turn was bought by Royal Bank. Front Street, meanwhile, took over management of the fund in 1999.

While Grauer’s account ping-ponged through these takeovers and mergers, it also flourished. Under Front Street’s management, the fund enjoyed average annual returns of 22.9 per cent over the last decade. Yet Grauer might never have learned of her windfall were it not for Pettigrew’s persistence, says the firm’s CEO Gary Selke. Pettigrew made it a personal project to reunite some early investors with their accounts, a task involving hundreds of phone calls. In one case an investor learned of an account worth more than $250,000.

Unfortunately, Pettigrew’s persistence appears unique in the industry. Which is why some, including Grauer, a Vancouver management consultant, believe there should be a national database of unclaimed investment accounts. The Bank of Canada already operates an online system that allows individuals to search through $351 million of unclaimed bank balances for their cash. But investments aren’t included. “I just assumed the Bank of Canada’s site captured investment funds,” says Susan Eng at CARP, a group that represents older Canadians. “At the very least we ought to have a default place where you can try to find your money.”

Easier said than done. Nailing down who would handle such a system triggers a head-spinning round of pass-the-buck. The Department of Finance refers questions to provincial securities regulators, who in turn say it’s a problem for the industry. Industry groups like the Investment Funds Institute say they’ll help individuals search for old investments on a case by case basis, but that it’s really up to the provincial governments. Banks will also hunt down unclaimed accounts if investors contact them, but the problem with this approach is the industry has undergone intense consolidation, and investors may have no idea where to start looking.

One possible organization seen to have the resources to operate a national database is the Investment Industry Regulatory Organization of Canada, the brokerage industry’s self-governing body. But Warren Funt, vice-president for Western Canada, says there are “significant hurdles” to such a database. For one, the IIROC oversees 200 investment dealers, and not firms like mutual fund dealers, portfolio managers and others governed by the rest of Canada’s smorgasbord of watchdogs. Unclaimed investment assets are also more complicated to handle than bank balances. “It’s a worthy objective, but I’m not sure it can practically be done,” he says.

In recent years B.C., Quebec and Alberta have passed unclaimed asset laws. (No such laws exist in Ontario.) B.C.’s Unclaimed Property Society, established in 2003, has a searchable database that includes old credit union accounts, unpaid wages and insurance payments. A spokeswoman says the society would handle investment accounts, but relies on firms to notify it of unclaimed assets. Since its launch, no investment funds have been sent its way. Nor is there a penalty should firms fail to flag unclaimed accounts.

Grauer can’t help wondering just how many other Canadians could be losing out on a chunk of their nest egg. “These companies could be sitting on a ton of money people don’t know about and collecting fees on it.” At the very least, it’s prompted her to dig around for any other stray accounts she may have. “I haven’t found anything else yet, but hope springs eternal.”

]]>https://www.macleans.ca/economy/money-economy/canadians-missing-billions-and-why-no-one-seems-to-care/feed/6The race to be Canada’s first $1-trillion bankhttps://www.macleans.ca/economy/business/the-race-to-be-canadas-first-1-trillion-bank/
https://www.macleans.ca/economy/business/the-race-to-be-canadas-first-1-trillion-bank/#commentsWed, 12 Mar 2014 17:10:37 +0000http://www.macleans.ca/?p=522485It reinforces just how massive Canada's banks are relative to the economy

Canada’s banks are huge. Everyone knows that. Just six institutions hold 90 per cent of all bank deposits in this country, a level of concentration almost unheard of in the rest of the developed world (save for maybe Australia). But Canada’s already massive banks are about to cross the threshold into truly gargantuan territory—because sometime in the next year or two, though probably in 2014, either TD Bank or RBC will become Canada’s first trillion-dollar bank when measured by total assets.

Drawing on the historical reviews in the banks’ annual reports, the chart above forecasts what could happen over the next two years based on the compound annual growth rates of the banks’ assets over the last decade. There was no point including the other banks on the chart. BMO’s assets are still below $600 billion while CIBC’s stand at just (Ha, just!) $400 billion. National Bank is less than half that. The race, if you want to call it that, comes down to TD and RBC, with Scotia a not-so-distant third. Given TD’s stronger performance in recent years, it’s likely to get their first. If TD maintain’s the pace of asset growth it posted in the first quarter of 2014, it could have $1 trillion in total assets by the fall.

It’s no small feat. Only four banks in the U.S., an economy 10 times larger than Canada, have crossed into thirteen-digit territory. And JP Morgan Chase, America’s largest bank with assets of US$2.4 trillion, only became a member of the trillion-dollar club in 2004. What this reinforces, once again, is just how massive a handful of Canadian banks are relative to the economy. Too massive, some argue (PDF). But while the office of Canada’s federal banking regulator placed the six largest banks on its list of “domestic systemically important banks” last year—compelling them to set aside an additional one per cent of capital as a percentage of assets—the global Financial Stability Board, which is still chaired by Mark Carney, recently bypassed Canada’s banks when drawing up its latest list of financial institutions it considers too big to fail.

Either way, expect some gloating from whichever bank hits the $1 trillion mark first, and a fresh round of soul searching from critics about the role of giant banks in Canadian society.

]]>ONDON – Barclays is putting aside another 1.05 billion pounds ($1.65 billion) to cover the costs of scandals over mis-sold financial products, the troubled bank said Tuesday. The announcement suggests other U.K. banks may soon also have to pony up more cash to cover similar scandals.

Barclays said in a statement that it was increasing its provisions by 600 million pounds to cover mis-sold payment protection insurance and another 400 million pounds to cover mis-sold interest rate swaps to small businesses — a practice currently being investigated by Britain’s financial watchdog.

Analysts at Espirito Santo investment bank said in a note to investors this “clearly suggest that further provisions are likely by other U.K. banks.”

Payment protection insurance was widely sold to consumers as a way to keep up with their loans, mortgages, and credit card payments if they ever got sick or lost their jobs. But in many cases the insurance was inappropriate, unwanted, or unworkable.

A host of British banks — including Barclays — have been deluged with demands for compensation from angry customers, and Britain’s Financial Ombudsman Service said last week that the claims were coming in faster than ever.

Meanwhile, Barclays is struggling to contain the fallout from various other scandals over financial malfeasance — most notably an industry-shaking uproar over the manipulation of the LIBOR, a key interest rate which affects trillions of dollars’ worth of loans. Several global banks are accused of being investigated, with Barclays paying a $453 million fine to settle allegations.

Last week the bank’s CEO said he was giving up his 2012 bonus because of the many difficulties.

Shares in Barclays fell 0.1 per cent to 2.91 pounds in morning trading on the London Stock Exchange.

]]>RBC chief earns $12.6 million for 2012, up from $10.1 million in 2011https://www.macleans.ca/general/rbc-chief-earns-12-6-million-for-2012-up-from-10-1-million-in-2011/
Mon, 04 Feb 2013 20:07:23 +0000http://www2.macleans.ca/?p=346457TORONTO – Royal Bank (TSX:RY) chief executive Gord Nixon received a pay increase last year after taking a million-dollar pay cut in 2011.
The CEO earned $12.6 million in 2012,…

]]>TORONTO – Royal Bank (TSX:RY) chief executive Gord Nixon received a pay increase last year after taking a million-dollar pay cut in 2011.

The CEO earned $12.6 million in 2012, marking a raise from $10.1 million in 2011, according to the bank’s annual disclosure released Monday.

Nixon had seen his 2011 paycheque decline from $11 million in 2010, as the bank took a hit related to the sale of its U.S. regional retail banking operations and the resulting writeoff.

But the bank said the CEO met or exceeded all of the objectives set out for him by the board of directors in 2012, despite “challenging market conditions.”

Royal said it delivered record earnings of $7.5 billion while it also lowered the risk on its balance sheet.

While the 2012 salaries of other bank CEOs are still to be reported, TD Bank CEO Ed Clark’s pay came in at about $11.3 million in 2011, while Scotiabank’s Rick Waugh earned roughly $10.6 million that year.

Royal Bank’s management proxy circular showed Nixon received a base salary of $1.5 million. He also received $1.65 million in stock- and option-based awards and a $2.85-million cash bonus. He also received a $8.25-million mid- and long-term incentives.

Nixon’s base salary held steady with 2011, while his stock and option rewards slipped from $5.1 million a year earlier but his cash bonus increased from $1.75 million.

The CEO’s compensation was 12 per cent above target levels, compared to 10 per cent below targets in 2011.

Nixon also received $1.09 million in pension value and $44,877 in other compensation for 2012 to bring the total value of his compensation package to about $13.7 million.

He was the bank’s top paid executive, beating out both chief financial officer Janice Fukakusa, who made $4.6 million, and Canadian banking head David McKay, who was paid $5.13 million.

For the year, Royal Bank earned $7.54 billion, rising from $4.85 billion in 2011. Revenue grew to $29.77 billion from $27.43 billion.

Royal Bank is the country’s largest bank by assets and market capitalization, and has 80,000 employees serving 15 million clients. The bank has operations across North America and 49 other countries.

Shares in the bank were down 50 cents at $62.04 in trading on the Toronto Stock Exchange.

]]>MILAN – Shares in the world’s oldest running bank, Monte dei Paschi di Siena, have been suspended from trading after reports claimed that its profits will be hurt by financial derivatives it has bought.

The bank has come under market scrutiny after the daily Il Fatto Quotidiano reported that a purchase of derivatives three years ago threatens to cut 2012 earnings by at least €200 million ($293 million). The bank’s former chairman, who reportedly approved the purchase, has resigned this week from the Italian banking association as a result.

Monte dei Paschi was suspended Wednesday from trading on the Milan Stock Exchange after dropping 8 per cent to €0.25.

The bank’s board is to vote on Friday on capital increases that are key to clinching a government aid package of€3.9 billion.

]]>Neil Barofsky on TARP’s record, HSBC and lessons for Canadahttps://www.macleans.ca/economy/business/interview-neil-barofsky-on-tarps-record-hsbc-and-lessons-for-canada/
https://www.macleans.ca/economy/business/interview-neil-barofsky-on-tarps-record-hsbc-and-lessons-for-canada/#commentsWed, 09 Jan 2013 21:01:44 +0000http://www2.macleans.ca/?p=334299A warning: Big banks are even bigger and more powerful than before the crisis

Neil Barofsky, then Special Inspector General for the TARP, testifying before Congress in April 22, 2010. (Harry Hamburg/AP Photo)

Neil Barofsky was the Special United States Treasury Department Inspector General for the Troubled Asset Relief Program, or TARP, the U.S. government’s $700bn program created in 2008 to shore up the U.S. financial system. He resigned in March 2011, criticizing “Treasury’s mismanagement of TARP and its disregard for TARP’s Main Street goals” in a scathing New York Times op-ed. He is the author of Bailout. How Washington abandoned Main Street while rescuing Wall Street. Today Barofsky is an adjunct professor and senior research fellow at the New York University School of Law.

Listen to Charles Reinhardt in conversation with Neil Barofsky:*

NEIL BAROFSKY podcast

*Please note: Both the podcast and the interview transcript have been edited for brevity.

—

INTERVIEW:

In an article for Bloomberg you wrote in July 2012 you pointed out that the top U.S. banks are 23 per cent larger today than before the crisis and control fifty two percent of all industry assets. Is the U.S. financial system more vulnerable than it was in 2007, and, if so, what went wrong in your view?

A lot of the things that were broken in our financial system, that helped create the massive financial crisis from which we’re still recovering, are still in place, and in some ways have actually gotten more severe. We had a problem with banks that were too big to fail, and as you just noted, they are even bigger now than they were. They had too much political power, too much regulatory influence over their own regulation back then, and I think what we’ve seen with recent events is that that power too has expanded along with its size.

We see a level of deference from Washington that really, fundamentally, hasn’t changed all that much. There’s maybe a difference in some of the public and political rhetoric, but when it gets down to brass tacks, the banks are still calling a lot of their own shots.

Now on the flip side, the banks themselves are in better shape, thanks to the multi-trillion dollar nature of the bailouts, than they were on the eve of the financial crisis. They’re still under-capitalized but they have more capital than they did then, they’re out of some of the more risky parts of their business, at least for now, and they’ve gone through at least some of those troubled assets, though not nearly enough. So in another aspect, they are in better shape than they were in 2008 going into the crisis, but overall our system and the structures of our system are still very very vulnerable to a systemic shock and another financial crisis, and I think because they’re larger, and because the United States has used up so much of its fiscal gunpowder dealing with the past crisis and trying to pay for the recovery, we’ll have a lot fewer options when that next crisis strikes.

In your book, you talk about some of the difficulties you had getting disclosure on how the TARP money was being used. Can you tell us a bit more about that?

Well, it was different things. I mean, one of the first things I did when I got down to Washington was to make what I thought at the time was not a terribly radical recommendation that we actually require the TARP banks to tell us what they’re doing with all that taxpayer money—they received hundreds of billions of taxpayer money. I thought, hey, in the interest of transparency, as well as to help keep track of money, to see whether it was being used in the manner that Treasury said was their policy goal. The goal was, again, not just to shovel the money into the banks, but that the banks would deploy those funds to increase lending. It seemed to me like a pretty common-sense recommendation. Treasury said “no”, and they didn’t just say “no”, they were almost violent in their response. As I pushed and pushed for them to do so, and eventually said that I would do it myself, using my audit function just to survey the banks, I was told that I was stupid, I was told that I was playing politics, I was eventually cursed out by Treasury Secretary Tim Geithner himself. And I suggested that his failure to do this was contributing to the lack of transparency and the loss of faith in government.

The other aspect of disclosure that was at times problematic was actually prying information out of Treasury. Ultimately, I got what I needed, but usually it was after a long battle, or multiple threats to go to Congress to inform them that Treasury was actually violating the law by not providing us with certain documents or information. But ultimately, we were able to break through that and get what we needed.

You also talk in your book about the failure to fully implement a mortgage modification program that was part of TARP and which was, at least originally, part of the rationale for justifying the bailouts. Could you tell us more about what happened?

People often forget that, particularly those who have a great interest in spinning the TARP as a great success, meaning those in Washington who oversaw the program and those on Wall Street who benefited from the program. They forget that the only way that that bill, the law, gets enough votes in Congress to become law and give Treasury the authority to go out and raise seven hundred billion dollars to rescue the banks was the promise made to members of Congress and the American people that something would be done about the foreclosure crisis, which, of course, was ravaging neighborhoods and communities across America, back in 2008.

[But, in the end,] it was a lot more about extending out the foreclosure crisis for the benefit of the large financial institutions, to give them a chance to recapitalize, in other words, to gain profits from all the other bank-friendly bailout programs and the homeowner, was, quite frankly, subordinated if not completely ignored.

In a recent article for the New Republic you harshly criticize U.S. authorities for failing to lay criminal charges against HSBC for “facilitating drug trafficking and transactions with rogue terror-sponsoring nations.” You write that the size and systemic importance of banks as big as HSBC is insulating them from legal proceedings and recommend that the Department of Justice should force the largest banks to break up if this is the case. HSBC, however, is a British bank. Wouldn’t this approach be impracticable without some sort of international cooperation agreement?

Look – I was being a bit tongue-in-cheek with my recommendation, to a certain extent with the foreign banks. But the complaint that HSBC made, the threat that they made, is one that is repeated every time there is an investigation into one of the largest financial institutions, whether domestic or international. And it’s a true, actual threat. And it goes like: “If you indict us, there is a chance that we will go under, and if we go under, we are so big and so interconnected we’re going to take the entire financial system down with us.”

That is not a sustainable system. That will incentivize institutions to commit crimes, to ignore the rule of law. So we have to come up with a solution. As for whether it’s practical, sure it’s practical. Because again, the Department of Justice wouldn’t be forcing the bank to break itself up. The Department of Justice would be saying, “Look, we’re going to indict you unless you break yourself up. And if you want to make the decision to break yourself up, go for it.” And maybe that bank makes the decision that they don’t want to do business in the United States of America anymore. And they take steps like that, which might be acceptable to the Department of Justice. But giving a bank a slap on the wrist of a penalty worth a couple of weeks’ earnings, without punishing them for having committed that type of crime solely because of their size and status should be unacceptable to the Department. And I think they should use whatever tools they have to prevent that from happening again, otherwise the incentives are going to be all lined up in the wrong direction.

Looking at Canada now, I just wondered if you could extrapolate a little based on your experiences to comment on the situation north of the border. We have a more concentrated banking system than the U.S.; our five biggest banks control around 85 per cent of total industry assets. Last October, Moody’s placed those firms on notice for a possible future downgrade, citing high consumer debt and elevated housing prices. We’ve had a very rapid appreciation in housing prices in Canada over the last few years. In light of these facts, should Canadians perhaps be looking more carefully at our own system?

I don’t know enough about the Canadian banking system, but that sounds awfully concentrated. The bottom line is if the banks and markets believe that a bank will be bailed out by the government, the normal laws and rules of capitalism don’t apply. And that gives them incentives to take on more and more risk, knowing that they’ll be able to profit if the risks pay off and if they don’t, well hey, it’s not them that’s bearing the cost. It’s going to be the taxpayers.

One area that I would advocate that’s necessary for the United States is to break up the largest banks. Here in this country we don’t need banks as big and as interconnected and as massive as the ones that we have. You know, the second path that perhaps Canada is trying to do is to make them more like utilities. You know, extremely heavily regulated utilities where the government is making sure that they’re not amassing unreserved and unprotected and undercapitalized risks and are fulfilling the role that banks have to fulfill in a capitalist society of matching up investors or depositors who need to use that capital, to grow and expand their businesses. So without knowing too much about the Canadian structure, I’m reluctant to offer an opinion, but big housing bubbles with large banks having a lot of exposure is certainly something we’ve experienced here in the United States with really devastating consequences. There’s only so much you can do when the bubble is inflated, and you know, I would hope that if that’s a fear that the policymakers are preparing for the inevitable popping of the bubble.

On a similar note, in 2008 the Canadian government stepped in to backstop Canadian interbank lending, not because our banks were insolvent but rather to “level the playing field” as all their international competitors had government support as well. In that scenario, can the world’s largest banks be de-coupled from implicit or explicit government support and should they be? If so, would some sort of agreement or consultation be needed at the international level?

The race to the bottom of bailouts is certainly something we saw in 2008, where every country stood behind banks [out of a] concern that [their] failure would help tear down a nation.

I personally think that the justification that “we’re doing it because everyone else is doing it” … is not a terribly persuasive one. Look, I think in a financial market, you look at a bank that doesn’t need to be bailed out or countries that don’t do bailouts, those banks may be more attractive in a normal, functioning, happy capitalistic market than the ones that are backed by a host country. Those types of banks are going to be more efficient, they’re going to be smarter, and they’re going to take fewer risks. They may not have the same level of profits, but that’s only because they’re not enjoying the same subsidy that the large banks get because of the explicit or implicit government backing. But over time, a free market and non-subsidized industries are going to do better and have to do better, than a subsidized one.

What lessons can Canadian financial regulators learn from the American experience in 2008, and if you can think of any, what might American regulators learn from the Canadian one?

I think one of the great lessons that we did learn from 2008 is that we have a deep problem of regulatory capture in this country, of regulators that are serving the interests of the financial institutions that they’re supposed to be regulating on behalf of the American taxpayer. There’s a number of reasons for that, but part of it here is because of the revolving door. The heads of agencies often come from Wall Street institutions that they’re supposed to be regulating and often regulators themselves leave government to go take higher paying jobs on Wall Street. And one, this creates a sense of ideological capture. What I saw in Washington is that when these individuals came from these institutions, they brought all of their Wall Street ideology with them, which led people like Tim Geithner, who didn’t come from Wall Street, but was surrounded by them, to really believe that they were being the most transparent folks ever. Who would knock down ideas like “you should tell us what you’re doing with the TARP dollars” as being impractical or unrealistic or something that shouldn’t be done. You know, I saw that time and time again. This lack of concern about fraud because of this inherent trust in their former employers.

But second, it incentivizes bad regulation. If a reward for a regulator for pulling their punches and pleasing the institutions that they’re regulating is a high-paying job on Wall Street or the Canadian equivalent of Wall Street, that’s not going to be a good incentive on behalf of the taxpayers and the regular people who are supposed to benefit from effective regulation. So I don’t know if it’s appropriate for Canada, but that’s certainly one of the most important lessons that I draw from the last crisis.

S&P says the risk for the Canadian banking sector is increasing and expects intensifying competition for loans and deposits will pressure profit growth.

The firm lowered its ratings by one notch on ScotiaBank (TSX:BNS) to A-plus. National Bank of Canada (TSX:NA), Laurentian Bank of Canada (TSX:LB), Central 1 Credit Union , Caisse centrale Desjardins and Home Capital Group (TSX:HCG) were also lowered one notch.

The outlooks for all six financial institutions are stable.

S&P also affirmed its credit ratings on the Royal Bank (TSX:RY) and TD Bank (TSX:TD) and raised its outlook to stable from negative. The agency currently rates both banks at double-A-minus.

A downgrade by a credit rating agency usually means investors will demand a higher interest rate when a company goes to raise cash by issuing bonds or other debt.

In its report, says the Journal, S&P noted that loan demand was approaching a cyclical peak and expected to moderate after several quarters of robust growth.

Other economic factors have also brought Canadian financial institutions under increased scrutiny from ratings agencies.

Back in October, Moody’s Investors Service announced it was placing the long-term ratings of six Canadian banks under review Friday for a possible downgrade.

It said high levels of consumer debt and high housing prices had left the banks more vulnerable to downside risks to the Canadian economy than in the past.

Moody’s had already cut Royal Bank’s long-term deposit rating to Aa3 from Aa1 in June as part of a move to cut the credit ratings of 15 of the world’s largest banks, including Bank of America, JPMorgan Chase, Citigroup and Goldman Sachs.

At the time, the agency noted that RBC had stronger buffers than many of its global peers in the form of earnings from other, generally more stable businesses.

Christine Lagarde, head of the International Monetary Fund, heaped another dollop of praise on Canada’s financial system during a gala dinner speech in Toronto last week. But while the country weathered the 2008 financial crisis better than most, Canadians should remember the old investing axiom: past performance is no guarantee of future results.

Though not in itself a cause for alarm—Canada’s banks “will continue to rank among the highest-rated banks globally,” according to Moody’s—it’s yet another piece of evidence that cracks are forming in Canada’s post-2008 economic miracle. Household debt-to-income ratios now stand at 163 per cent, higher than in the United States before its housing crash and up from 147 per cent two years ago. Finance Minister Jim Flaherty has been forced, several times, to save giddy borrowers from themselves by dialling back maximum mortgage amortization periods.

Even the banks seem to have recognized Canadians are tapped out, and are looking elsewhere for profits. RBC last week revealed plans to spend $1.4 billion to buy auto lender Ally Financial while TD said it was buying retailer Target’s credit card business. The Bank of Nova Scotia also recently purchased the online bank ING Direct for $3.1 billion.

Lagarde suggested Canada could “teach the rest of the world” how to build a strong financial sector. The rest of the world may want see how Canada’s approach plays out first.

]]>https://www.macleans.ca/economy/business/dont-bank-on-it-2/feed/2RBC to buy Canadian auto finance unit of Ally Financialhttps://www.macleans.ca/general/rbc-to-buy-canadian-auto-finance-unit-of-ally-financial/
Tue, 23 Oct 2012 13:07:51 +0000http://www2.macleans.ca/?p=306108TORONTO – Royal Bank of Canada (TSX:RY) has confirmed it will acquire the Canadian auto finance and deposit business of Ally Financial Inc.
RBC says the deal will strengthen its…

]]>Explaining Canaccord’s drastic cutback in Canadahttps://www.macleans.ca/economy/business/explaining-canaccords-drastic-cutback-in-canada/
https://www.macleans.ca/economy/business/explaining-canaccords-drastic-cutback-in-canada/#commentsTue, 25 Sep 2012 22:08:55 +0000http://www2.macleans.ca/?p=296799There's still money to be made in wealth management. Just not in Canada.

Canaccord Financial’s recent decision to shutter half of its 32 branches in Canada underscores just how competitive the wealth management business in Canada has become—at a time when there’s not a lot of money to be made from it. The obvious culprit is persistent uncertainty about the global economy, which has kept nervous investors on the sidelines. At the same time, it has also caused companies to hold off on share offerings, creating a sort of double whammy for firms like Canaccord, one of the country’s last remaining independent full-service brokerages.

Under normal circumstances, however, none of this would be a particular cause for concern since stock markets are cyclical. Once the bull market returns, so too will investors. But Canaccord has also found itself squeezed by Canada’s big banks, which have used their giant war chests to pile into the wealth management space—a business that is seen as relatively low risk (unlike investment banking) because of its fee-based compensation structure. The result? Too many advisors chasing too few clients, which is eating into everybody’s profits.

One year after a special-forces mission killed Osama bin Laden, his al-Qaeda network is looking downright defeated. In Guantánamo Bay, military prosecutors opened their landmark case—2,973 counts of capital murder—against the 9/11 ringleaders, including the brains of the operation, Khalid Sheikh Mohammed. In Yemen, an air strike killed Fahd al-Quso, one of the terrorists behind the 2000 bombing of the USS Cole. And in Washington, intelligence officials are patting themselves on the backs after thwarting yet another “underwear bomber” who planned to target an American passenger jet.

Outswimming climate change

A ski resort in Aspen, Colo., hosted a race this week—minus the snow. The all-grass gimmick was one of hundreds of events around the world aimed at “connecting the dots” on global warming. “The main point is that climate change is already happening,” said one organizer. The good news? Polar bears are ready for the warm front. A new study has found that female polar bears are actually quite capable of swimming vast distances between ice floes; one animal, tracked with a GPS collar, swam an astonishing 354 km.

Proof positive

Another week, another list of reasons to love Canada. Our banks are solid; four of them (CIBC, RBC, Toronto-Dominion and the National Bank) landed on a top 10 list of the world’s strongest financial institutions. Canada is also a wonderful place to be a mother—one of the best countries in the world, according to another global survey. And thanks to a ruling from the CRTC, Canadian broadcasters are no longer allowed to crank up the volume during commercial breaks. Now if only we could get a team past the first round of the NHL playoffs.

Help me, Obi-Wan

R2-D2 would be proud. A team of researchers at Queen’s University is close to perfecting a video-conferencing program that can produce life-sized, three-dimensional holograms of someone on the other side of the world. Known as a “TeleHuman,” the invention will transform Skype into Star Wars, providing a cylindrical, 360-degree view, a la Princess Leia. Skeptical? Search your feelings. You know it to be true.

Bad news

Denis Poroy/AP

Demokracy

Vladimir Putin was sworn in as Russian president, but it was no cause for celebration. The former KGB strongman has now held the country in his iron grip for more than a decade, sidestepping term limits by switching jobs with new prime minster (and former president) Dmitry Medvedev, and suppressing the opposition. His latest election victory has been clouded by allegations of widespread fraud, and hundreds were arrested at Moscow protests prior to his inauguration. After amending the constitution, Putin could hold power until 2024, becoming the longest-serving leader since Joseph Stalin. The future looks bleak.

The skinny on fat

According to a new study, obese women have a much harder time finding a job than their slimmer counterparts. The research, conducted in England and Australia, also found that larger women are offered smaller starting salaries and are deemed less likely to advance up the company ladder. If it’s any consolation, there are now fewer jobs for ultra-skinny girls, too. Concerned about promoting anorexia and bulimia, Vogue magazine has banned all models under the age of 16 and any women who look “unhealthy.”

Jubilee fee

Stephen Harper’s Conservatives have set aside $7.5 million to commemorate the Queen’s Diamond Jubilee, including more than $100,000 for paper flags and lapel pins, and $28,000 for posters. The budget also includes $95,000 to print A Crown of Maples, a publication that “makes information on the Crown in Canada available to Canadians in an interesting and educational format.” Here is some more information: Canada’s fleet of F-35 fighter jets—whatever the actual cost—will not be ready in time for the festivities.

Ignore the beep

You know this already, but science has confirmed it: your email could be killing you. U.S. researchers have found that people who don’t check their inboxes on a regular basis are less stressed and more productive at work, while those who incessantly monitor their mail are less focused and have higher heart rates. A link to the study can be found on our website (macleans.ca). Be sure to forward it along to your colleagues as quickly as possible.

]]>Many of the big banks are on a layoff spree. Barclays Capital is axing 3,000 jobs; Credit Suisse, 2,000; meanwhile, UBS, Bank of America and Goldman Sachs are trimming payrolls as well. The cutbacks come amidst tougher financial regulations and the spreading sovereign debt crisis, but also seem to reflect the West’s shrinking weight in global finance. Last week, for example, HSBC said it plans to eliminate 30,000 jobs, but also announced that it will add 3,000 to 4,000 employees a year in emerging markets. The hiring is supposed to kick off with 200 new jobs in the fast-growing Asia-Pacific region. Earlier this year, Goldman announced plans to increase its Brazil workforce by 20 per cent, and Credit Suisse said it would boost the ranks of its investment bankers there. Brazil’s economy grew at a record 7.5 per cent last year, and expanded almost three times faster than that of the U.S. in the first quarter of this year.

This shift toward emerging markets is hardly surprising. Citi­group, the third-largest bank in the U.S., made more than half of its profits in developing countries last year, and revenue from there helped HSBC cushion Europe’s flat performance in the first half of 2011. At least some of the jobs, it seems, are going where the money is.

]]>Why you shouldn’t be loyal to your bankhttps://www.macleans.ca/economy/economicanalysis/why-you-shouldnt-be-loyal-to-your-bank/
https://www.macleans.ca/economy/economicanalysis/why-you-shouldnt-be-loyal-to-your-bank/#commentsWed, 11 May 2011 18:03:48 +0000http://www2.macleans.ca/?p=191174When it comes to your relationship with your bank, you should be flirtatious. That’s the takeaway from a recent report by the Bank of Canada, which concludes that “loyal consumers…

]]>When it comes to your relationship with your bank, you should be flirtatious. That’s the takeaway from a recent report by the Bank of Canada, which concludes that “loyal consumers pay more” when negotiating a mortgage rate with their bank. If you have three or more products with the same bank (such as a bank account, credit card and insurance), the bank “interprets your loyalty as reason to believe you are less likely to shop around, making you less price sensitive,” writes RateHub, a Toronto real estate startup that noticed the report.

The Bank of Canada’s study found that new clients receive a rate discount of 0.1 per cent more than existing clients. Based on the average value of Canadian homes on the market, which is currently around $370,000, that translates into savings of about $6,000 on a 25-year mortgage at a 4 per cent rate. It’s a substantial price to pay for loyalty.

]]>As banks announce their annual bonus pools in coming weeks, Europe’s top regulator urged them to “show moderation and responsibility”—before enumerating the consequences if they don’t. Michel Barnier, the European Union’s internal market commissioner who oversees financial services, said banks needed to act “in a responsible and moderate fashion” and that “banks in Europe would be well advised not to lose sight of the economy and society.” Barnier’s comments echo concerns over bankers’ pay as Wall Street institutions such as JPMorgan Chase and Goldman Sachs set aside billions of dollars for their employees. Barnier pointed to the restrictions on pay agreed to by member states and parliamentarians last year, but did not explicitly threaten any further rule-making on pay. However, he did note that Brussels is still considering the whole area of corporate governance in the financial services sector.

The last few weeks of 2010 brought a flurry of new lawsuits against Wall Street’s heavy hitters, as lawyers for the victims of Bernard Madoff’s Ponzi scheme raced against a Dec. 11 legal deadline marking two years since the financier’s arrest. Among the big names targeted in the fresh batch of lawsuits are JPMorgan Chase, UBS, HSBC, Citigroup and Merrill Lynch-Bank of America.

The banks have called the lawsuits “unfounded” and “utterly baseless.” But Irving Picard, the court-appointed trustee who’s spearheading the effort to recoup defrauded investors’ money, says it’s Madoff’s financial activity that bore little resemblance to reality—and big banks should have known. The lawsuit against HSBC alleges the bank failed to notice that some of Madoff’s trades had been settled on a Saturday, when stock markets are closed, and that for three years his investor statements misnamed a fund in which he claimed to have put client money. HSBC did hire an independent auditor to look at Madoff’s deals, and the probes warned of possible shams and fraud. But the bank is accused of turning a deaf ear.

The accusations echo the class-action suit that hit Royal Bank of Canada earlier last year for allegedly failing to flag suspicious movements in former Montreal financial adviser Earl Jones’s RBC account. The collapse of Jones’s fund cost his investors around $50 million.

But whether victims in both cases will be able to dig into the defendants’ deep pockets remains to be seen. Neither RBC nor the U.S. banks involved in the Madoff affair advised investors to put money in the schemes. Insinuating that the banks must have known of the scams, moreover, does not carry the same weight as saying that they did know, which might be impossible to prove. Investigations into big bank bankruptcies in the U.K., for example, merely found evidence of poor management and excessive risk-taking, which isn’t actionable or illegal.

At the very least, these legal crusades are showing how complicated a process resolving the Madoff affair will be, and a lot of parties who may or may not bear any culpability could get smeared along the way.

]]>https://www.macleans.ca/economy/business/blaming-banks-for-madoff/feed/2The ideal crime?https://www.macleans.ca/economy/business/the-ideal-crime/
https://www.macleans.ca/economy/business/the-ideal-crime/#commentsThu, 14 Oct 2010 14:20:19 +0000http://www2.macleans.ca/?p=151274Mortgage fraud is easy, common and lucrative. And in Canada, more often than not, it is left unchecked.

Several years ago, the Bank of Montreal first noticed what it described as “irregularities” in some mortgages sold in Alberta. After conducting an internal investigation, it quietly launched a lawsuit last year that alleged a massive mortgage fraud scheme involving hundreds of people, ranging from lawyers to mortgage brokers and four of the bank’s own employees—even a Calgary MP. It also hired a forensic accounting firm to try to trace the funds. BMO claims it advanced a total of about $70 million in mortgage funds to the scheme’s architects, with its losses estimated at $30 million.

Those who work in Canada’s mortgage lending industry described the case, which only came to light earlier this year, as unusual—not because mortgage fraud is rare in Canada (police say it’s not), but because of the size and sophistication of the operation, which involved as many as 14 different interconnected groups.

BMO’s decision to file a lawsuit (in a bid to recoup its money) is also seen as an oddity, with some suggesting that banks and other lending institutions are reluctant to talk about what is believed to be a relatively easy—and lucrative—crime to commit. “If you’re a bank with 1,200 branches, they would probably say that by talking about it, they’re going to educate people on how to pull off a fraud,” says Gerald Soloway, the chief executive of Home Capital Group, which sells mortgages in British Columbia, Alberta, Ontario and Nova Scotia. “I happen to feel that it is a big problem. And I, for one, would like to see more resources devoted to trying to stamp it out.”

But clamping down on mortgage fraud, worth hundreds of millions of dollars annually by some estimates, is easier said than done. For one thing, nobody has any idea precisely how big a problem it is in Canada because, unlike in the United States, no one keeps national statistics on it. And the scams tend to be difficult and time-consuming for police to investigate, if they get investigated at all. But the biggest obstacle may simply be the fact that, in a booming real estate market such as Canada’s, it’s easy to pretend the problem doesn’t exist since there’s far more money to be made selling mortgages than guarding against their abuse.

As white-collar crimes go, many mortgage frauds are relatively straightforward: buy a cheap home in a good neighbourhood and then, with the help of a shady lawyer, real estate agent or other industry professionals, sell it at an inflated price to a phony “straw buyer”—basically anyone who can be convinced to apply for a mortgage using fake income and credit documents in exchange for a few thousand dollars. Thinking there is nothing out of the ordinary, the institution then lends the money (often without conducting a physical appraisal) and the ringleaders pocket their profits, leaving the straw buyers on the hook. It’s often only when the lender eventually forecloses on the property that it’s discovered the house in question is worth a fraction of the amount claimed in the mortgage application.

Given the vast amounts of money up for grabs, the relative simplicity of the scam, and what many argue is a lack of resources to investigate suspected cases, it’s no surprise that mortgage fraud has emerged as an attractive option for career criminals in recent years. “What we’ve seen is that, while the housing market was going up, there was a lot of money to be made—both by legitimate homebuyers, but also by organized crime,” says Greg Draper, a forensic accountant in Alberta and former RCMP officer. Plus, unlike other forms of organized crime, “nobody gets shot over mortgage fraud and the Hells Angels don’t typically come and burn down your house.”

The alleged BMO fraud ring, which an RCMP spokesperson said is still under investigation and has yet to result in charges, is by far the largest in recent memory, but BMO spokesperson Ralph Marranca says it doesn’t indicate a systemic problem at the bank, which says only a tiny fraction of its mortgage losses are due to fraud. He says the suit was launched mainly to recoup the lost money and to “send a strong message” to would-be fraudsters.

It’s unclear whether they are getting the message. In August, Alberta’s integrated law enforcement unit said it had laid charges in a similar but separate $12-million mortgage fraud case after a two-year investigation. The financial institutions allegedly targeted include Scotiabank, ATB Financial, First National Financial, TD Canada Trust, CIBC, Merix Financial, Royal Bank and MCAP Financial, according to police. A 31-year-old man, described as a ringleader, has been charged with 23 counts of fraud over $5,000 and one count of extortion. Other individuals are also facing charges.

While mortgage fraud is a problem across the country, Draper says Alberta emerged as a particular hot spot because of the booming housing market in cities like Calgary, where rapidly escalating prices don’t look out of the ordinary. As well, he says the province’s laws make it easier for buyers to assume someone else’s mortgage, allowing crooks to transfer properties back and forth several times in a bid to artificially inflate the price.

Police in Mississauga, Ont., near Toronto, recently busted a mortgage fraud ring that involved a credit union catering to the local Croatian community. The suspects are accused of defrauding the credit union and its 4,000 customers of about $9 million over a six-year period, although their deposits are covered by insurance, with the exception of a $250 membership fee. The scam was similar to the ones uncovered in Calgary, but involved parcels of rural land instead of houses, police alleged.

It’s not just banks and credit unions that are being victimized. People who buy in neighbourhoods where mortgage fraud is rampant are at risk of paying more than necessary for their houses and, subsequently, more in property tax. And they can suffer further when a wave of foreclosures hits, causing property prices to plummet. Those recruited as “straw buyers” have sometimes been painted as victims—particularly new immigrants without a solid grasp of how the country’s real estate industry works.

The recent flood of high-profile cases has prompted calls for action. “People within the mortgage industry—lenders, insurers and others involved in real estate transaction—all want to make sure that this crime is treated seriously and that the proper resources are applied,” says Jim Murphy, the president of the Canadian Association of Accredited Mortgage Professionals, which boasts some 12,000 members and represents more than 90 per cent of mortgage activity in Canada. A first step, he says, is getting a handle on the problem by creating some sort of centralized reporting database. That’s now the case in the U.S., where mortgage fraud is being closely tracked and was estimated to cost various institutions some US$14 billion last year. It’s such a serious problem that the FBI assembled a national mortgage fraud team in 2008 that’s charged with working with law enforcement agencies and the real estate industry to investigate everything from loan origination scams, where falsified information is used to obtain mortgage loans, to shady dealings in the market for mortgage-backed securities.

While Murphy says he doubts the problem is nearly as widespread in Canada, where the banking system is different and didn’t suffer from the same level of risky subprime lending, the truth is there is really no way to tell for sure. In Canada, mortgage fraud is generally dealt with by the commercial crime departments of local police agencies. The RCMP has investigators who specialize in mortgage fraud in Calgary and Vancouver, but there is no dedicated team at the national level, according to a spokesperson.

As for numbers, the industry group representing the country’s banks says it doesn’t keep any statistics on mortgage fraud on behalf of its members. Maura Drew-Lytle, a spokesperson for the Canadian Bankers Association, says numbers are “difficult to compile because there are a number of groups taking the losses,” ranging from banks and credit unions to insurance funds. A spokesperson for the Canada Mortgage and Housing Corp., meanwhile, wasn’t able to provide any data on how much it pays out annually in claims related to mortgage fraud before this article went to publication. The Crown corporation is charged with backstopping lenders who provide mortgages to buyers who put down payments of less than 20 per cent on their homes. In total, the CMHC paid $1.1 billion in net claims last year, up dramatically from the $372 million it paid out in 2008, although much of the increase was due to the impact of the recession on homeowners who suddenly found themselves stretched to the limit. In fact, the closest thing to an official estimate is found in a 2007 report by the Criminal Intelligence Service Canada, which cites industry estimates of mortgage fraud that “range into the hundreds of millions of dollars annually.”

Why the tepid response? One possible reason is because the country’s banks and other lending institutions have decided that it’s an acceptable cost of doing business in a sector that boasted $940 billion worth of outstanding mortgage loans last year. “The banks are in the customer service industry,” says Draper. “And if they can’t get the customer what they need on a timely basis, the customer will go somewhere else.” As a result, many big banks rely heavily on computer-automated underwriting and property-valuation systems to conduct mortgage transactions cheaply and quickly—a part of the business the CISC report described as a “major vulnerability.”

The Canadian Bankers Association, however, disagrees. “We think that is too simplistic a view,” Drew-Lytle wrote in an email. “There are fraud detection measures built into these automated systems that will raise red flags for further investigation, which might include doing an appraisal.” She also denied that the industry tries to keep mortgage fraud quiet. “Real estate fraud is different than many other types of fraud and much more complex. There are many different parties involved; banks are not always aware if another party has become a victim.”

Like all commercial lending, mortgages are a calculated gamble. But lenders can afford to be less careful in a hot housing market, where a property that gets foreclosed on today will likely be worth more tomorrow (giving defrauded lenders an opportunity to recoup a portion of any losses). Add to that the fact that many of the riskiest loans are likely to be insured by the CMHC, which says it has a policy of paying 100 per cent of all eligible costs on fraud claims made through its automated system (with the notable exception of cases where the lender or its staff are involved, which may be why BMO decided to pursue the case in the courts), and it’s easy to see why many are willing to take the risk.

Murphy, for one, says he would like to see mortgage fraud treated as a more serious offence (most suspects are usually charged with fraud over $5,000), with more police resources dedicated to investigations. “If someone has a DVD player stolen from their home, the police come and fill out a report,” he says. “We think mortgage fraud should be dealt with in the same way because they actually take the whole house.”

]]>https://www.macleans.ca/economy/business/the-ideal-crime/feed/5Our banking rules are smarter, not tighterhttps://www.macleans.ca/general/our-banking-rules-are-smarter-not-tighter/
Mon, 08 Feb 2010 13:10:55 +0000http://www2.macleans.ca/?p=105247ANDREW COYNE: Obama’s banking reforms would make the U.S. and Canadian systems even less alike than they are at present

For all their growing closeness on other matters, such as global warming, Barack Obama and Stephen Harper could not be further apart on the issue of how to reform banking regulations, in the wake of the worst financial crisis in 75 years. A week after unveiling tough new rules that would limit the size and scope of banks’ activities—and two weeks after hitting them with a hefty new tax—the President took at least a dozen swipes at “banks” or “bankers” in his state of the union speech. Over and over again, he reminded his listeners of the banks’ part in the crisis, of how they had had to be bailed out at public expense, and of how, once the worst had passed, they had quickly reverted to their old ways.

The next day, Harper took the stage at the World Economic Forum in Davos, Switzerland, to deliver a very different message. While some reform was in order, he allowed, “Canada believes that financial sector regulation . . . must not be excessive.” He understood how, “in situations very different than Canada’s,” public anger over the failure and subsequent bailout of the banks had fuelled “demands for tough or even retaliatory measures.” But Canada “will not go down the path of excessive, arbitrary, or punitive regulation of its financial sector.” Canada would go its own way, its banking system would remain a haven of relative freedom, whatever certain other countries might choose to do.

The odd thing about this parting of the ways is that some of Obama’s closest advisers and acolytes seem to think they are copying the Canadian model. By forcing banks to get out of the riskier types of trading and capping their size, they imagine themselves to be replicating the safe, stolid commercial banks that have lately made Canada famous. The former chairman of the Federal Reserve, Paul Volcker, on whose recommendations the President’s reforms are based, has spoken of his fondness for the Canadian system, with its supposed focus on the traditional business of banks, taking deposits and making loans. The influential columnist Paul Krugman wrote this week in praise of Canada’s “boring” banks.

But in fact Obama’s reforms would make the two systems even less alike than they are now. Canada’s banks haven’t been kept small and dispersed: they’re massive, at least relative to their home market. And far from being restricted to plain-vanilla commercial banking, since the 1980s they have been permitted to enter most other areas of financial services, notably investment banking. We’re the exact opposite of the model Obama is pushing.

If Obama really wanted to copy the Canadian model—and there are many reasons he should—the first thing he’d have to do is consolidate financial regulation under a single, national regulator, in place of the hodgepodge of state and federal agencies that now make the rules. Depending on its composition, a U.S. financial conglomerate might find itself or its subsidiaries regulated by some or all of the Federal Reserve, the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the National Credit Union Administration and a couple of others besides—and that’s just at the federal level. Whereas Canada has OSFI: the federal Office of the Superintendent of Financial Institutions, with the power to regulate the whole entity, subsidiaries and all.

He’d have to abolish the Community Reinvestment Act, with its detailed instructions to banks on the proportion of mortgage loans that should be made available to lower-income borrowers. Likewise, he’d have to wind up Fannie Mae and Freddie Mac, the big national public-private enterprises, with their similar mandates to make home ownership more “affordable” through their activities in the secondary mortgage market. There is simply no equivalent for either in Canada: the mortgage insurance provided through the Canada Mortgage and Housing Corp. backstops the banks, not their customers.

Canada’s regulatory approach is undoubtedly simpler than America’s, and probably smarter. But it is not noticeably tighter. It sets limits on banks’ leverage ratios, requires them to be adequately capitalized, but avoids the sort of micromanaging in which U.S. federal and state governments have habitually indulged since the days of Andrew Jackson. Indeed, far from confining the banks, Canadian policy has erred on the side of coddling them, for example protecting them from foreign takeover bids, or even domestic ones, to the detriment of competition. Before Canada’s bankers became everybody’s heroes, they were the object of consistent criticism over their high costs and complacent business practices, and not without cause.

This isn’t to say the President’s proposals are without merit. On the contrary, there is a certain logic to them. If the purpose is to avoid making policy hostage to banks that are “too big to fail,” thus exposing the system to “moral hazard” (where banks, knowing they will be bailed out if they take on too much risk, are encouraged to do just that), there are two obvious ways to go about it: either prevent banks from becoming too big, or prevent them from failing. The President’s plan would do a bit of both, wrapping the larger deposit-taking institutions in a web of regulation while ensuring the riskier investment-banking sorts of institutions never become large enough that their failure would pose a systemic risk. (See: Lehman Brothers.)

But there are other ways of addressing this problem, and Canada’s is one of them.

]]>In an exhaustive report on Canada’s banking system by the Financial Times, one sentence stands out: “Canada is the only G7 country to survive the financial crisis without a state bail-out for its financial sector.” Chrystia Freeland talked to everyone who is anyone in Ottawa, Bay Street and beyond to find out why the True North proved so resilient while banks elsewhere required billions and billions in handouts. Canada’s “culturally distinct approach to banking” was her main finding. In the end the reason wasn’t the “play nice” stereotype but rather something even more fundamental to Canada’s system: a belief in order and good government and above all, rules. Freeland quotes a senior official in Ottawa who said, “[Canadian bankers] are boring, but in a good way. They are more interested in balance sheets than in high society. They don’t go to the opera.”

]]>https://www.macleans.ca/general/how-dull-canada-outshined-the-world/feed/7It’s not the banks I hate, it’s their fanshttps://www.macleans.ca/general/its-not-the-banks-i-hate-its-their-fans/
https://www.macleans.ca/general/its-not-the-banks-i-hate-its-their-fans/#commentsTue, 26 Jan 2010 22:52:15 +0000http://www2.macleans.ca/?p=103966$39.8 billion: That’s how much Quebec’s Caisse de dépôt et placement lost in 2008.
After watching a quarter of its total value vanish into the ether, the Caisse naturally opted…

]]>$39.8 billion: That’s how much Quebec’s Caisse de dépôt et placement lost in 2008.

After watching a quarter of its total value vanish into the ether, the Caisse naturally opted for the most reasonable course of action—it sought to reinsure nervous investors by preaching and exercising extreme caution in the face of what could very well have been a devastating economic and political crisis.

Wait, you didn’t believe that did you? Has AIG taught you nothing about the world of high finance?

What the Caisse did was throw themselves a big, expensive Christmas party—an even bigger one than the year before, when they’d registered a gain of 5.6%.

Of course, it’s not like the $56,099.31 they spent on food and drinks would have made much of dent in the investment fund’s bottom line. (Besides, a company rep insists that a “large portion of the total cost of these evenings was paid by the employees themselves.”) And you can hardly blame them for wanting to close out 2009 with a drink or twelve. Still, there’s something unseemly about doing it at a swanky, open-bar party for 500 people at Windsor Station, especially in light of what was going on around them.

In the days leading up to the party, three leading managers at the Caisse wrote an anonymous letter to media outlets complaining that “nervousness, fear, dysfunction and a lack of confidence” were spreading inside the fund’s ranks and a separate news report revealed the Caisse was implementing an especially low-threshold bonus program to top up its employees’ earnings. Most recently, the PQ registered its polite disapproval of the fact $4 million worth of bonuses were handed out to five senior managers at the Caisse.

In an open letter published yesterday by Le Devoir, Michael Sabia, the Caisse’s head honcho, insisted changes implemented over the past year were guided by “common sense” and a focus on “transparent investment vehicles of which we have a deep understanding.” In other words, pouring copious amounts of money into risky products no one really understands is being phased out as an investment strategy. Pity, that.

That said, there may yet be hope for Caisse employees—Sabia didn’t mention how “common sense” would impact preparations for this year’s party.

]]>https://www.macleans.ca/general/its-not-the-banks-i-hate-its-their-fans/feed/24Econowatchhttps://www.macleans.ca/economy/business/econowatch-35/
https://www.macleans.ca/economy/business/econowatch-35/#commentsFri, 11 Dec 2009 13:30:13 +0000http://www2.macleans.ca/?p=97310A weekly scorecard on the state of the economy in North America and beyond

]]>Even before Canada’s job market shifted back into high gear with Friday’s encouraging jobs report, it was clear something fundamental had changed. Never mind the recent prognostications by analysts about better days ahead. Sometimes all the cues you need can be found in the lives of the people behind the statistics.

Take the story of an employee we’ll call Janice who works at a small, struggling auto parts supplier outside Toronto. As the economy began to crumble last year, management put everyone on a four-day workweek and slashed pay, even as they rewarded themselves with bonuses. Workers weren’t happy, but what could they do? It was brutal out there.

Then a few days before the new employment data was released, the higher-ups tried to turn the screws again with more pay cuts. Only this time a couple of employees in the sales and accounting departments did something that even two months ago would have been unheard of—they told their boss to shove it. “Quitting felt so good,” Janice said, after giving her notice. And here’s the kicker: she didn’t even have another job lined up yet.

That, folks, is what economists describe as a rebound in confidence. But most people would just call it chutzpah. And it’s something we haven’t seen in the labour market for a very long time.

Make no mistake, the fact the economy added 79,000 new jobs in November doesn’t guarantee a prompt and speedy recovery. There are still vast numbers of Canadians out there fearful for their jobs. Younger workers in particular have felt the brunt of the recession, with an unemployment rate nearly twice the national average. Nor are investors convinced Canada’s economy is back on solid ground. It’s not gotten much attention yet, but Canada’s stock market has been sputtering sideways for months now, with the much-heralded rally actually ending back on Sept. 16, when the TSX closed at 11,555 points—almost exactly where it languishes today.

But put all that aside for a moment. During the recession Canadian employees were repeatedly asked to take one for the team. Yet prior to the downturn, Canada was in the throes of a labour shortage. As skilled workers begin to reassert themselves, the balance of power will shift back to its previous state. It may take some time, but you can bet many disgruntled employees are just plucking up the courage to follow in Janice’s footsteps.

THE GOOD NEWS

Building boom
The Canadian real estate sector continues to drive the country’s economic recovery even as some warn of the possibility of a housing bubble. Statistics Canada said the value of building permits hit a 13-month high of $6.1 billion in October, an increase of 18 per cent. Economists had predicted a one per cent jump.

TARP tamed
The Obama administration is planning to cut its Troubled Asset Relief Program by some $200 billion as Wall Street appears to be on the mend. The U.S. government now plans to spend just $141 billion over the next decade on the financial sector.

’Tis the e-season
U.S. online retailers enjoyed a five per cent jump in sales on the first Monday following American Thanksgiving, now known as Cyber Monday, the day when Americans return from a holiday spent window shopping and place online orders. The US$887 million that was spent equalled the busiest e-commerce day on record.

You’re hired
Restaurants, grocery stores and other retailers are hiring more employees, as confidence in the economic turnaround grows. In November, nearly four per cent of all job applications resulted in hires, the highest level so far this year.

THE BAD NEWS

Cool on cars
Automakers may be seeing a faint light at the end of the tunnel as North American sales of cars, trucks and SUVs gradually pick up—but Canadians don’t seem to be doing much of the buying. Car sales in Canada were down 2.9 per cent in November after driving off a cliff in October. By contrast, vehicle sales in the U.S. market were essentially flat year-over-year, with observers blaming the U.S. government’s Cash for Clunkers program for recent volatility in U.S. sales numbers.

Factory blues
Manufacturing levels in the U.S. did not increase as much as economists had hoped in November. The Institute for Supply Management’s manufacturing index fell two points from the month before to 53.6. Nevertheless, the index still shows an increase in output year-over-year, suggesting the economy continues to expand.

Busted
The number of U.S. companies and people being pushed into bankruptcy continues to soar. Bankruptcy petitions were up 26 per cent in November compared to the same time last year, according to data compiled from court filings by Jupiter eSources. The good news is there were slightly fewer bankruptcy petitions in November than October. Still, the first 11 months of this year resulted in 1.3 million U.S. bankruptcy filings, about 21 per cent more than in all of 2008.

Graph of the week

A real recovery • The very modest GDP growth in the third quarter suggested a recovery in Canada won’t be easy. But there are more encouraging signs that the recession is truly over. Both consumer spending and business investment posted the biggest gains since 2007.

Signs of the times

Don’t stand between a banker and his bonus. The board of the Royal Bank of Scotland threatened to resign en masse after the British government suggested it might veto bonus payments for 20,000 investment bankers. Hundreds of the bankers have already reportedly quit in protest. The bank received a nearly $80-billion bailout last year, and has come under intense scrutiny for its bonus plans.

Fore! Close! The game of golf has been sent running for cover by the recession. This year, 114 courses have closed in the U.S. as players cut back on green fees. Several others have been forced into bankruptcy as values of some courses have fallen as much as 50 per cent in the real estate crash. The industry has been hit by its own credit crunch, too, as golf course lenders have turned off the taps.

Alligator farmers in Louisiana, the alligator farming capital of the world, have felt the bite of hard times. Last year, the farmers picked 500,000 wild alligator eggs. This year, they haven’t taken any as demand for luxury alligator skin products, from watch straps to hand bags, has disappeared. Their troubles have been made even worse by an oversupply of alligator skin in recent years.

Damn the recession, it’s full speed ahead for the cruise ship industry. Royal Caribbean just launched Oasis of the Seas, a US$1.4-billion ship that rises 20 stories above the sea. Norwegian Cruise Line has an equally big ship in the works—the US$1.2-billion Norwegian Epic. Despite the downturn, the companies say they’re taking the long view with ships that will be plying the seas for 30 years.

Latest intelligence

After months of shedding workers, Canadian companies are finally hiring again. Some 79,100 jobs were created in November, including many in the key private sector. That blew by economists’ forecasts and, when combined with similarly positive U.S. jobs data, raised hopes that the economy is recovering faster than expected.

“Job numbers tend to be quite volatile, but there may be something to this.” – Eric Lascelles, chief economics and rates strategist, TD Securities

“November’s net hiring was all the more encouraging in that it included a swing back toward paid employment at the expense of self-employed jobs.” – Avery Shenfeld, chief economist, CIBC World Markets

“With the unemployment decreasing and the participation rate rising, there is no doubt that the Canadian labour market is improving.” – Yanick Desnoyers, assistant chief economist, National Bank Financial

The Week Ahead

FRIDAY, DECEMBER 11: The U.S. Census Bureau will release retail sales figures for November. Sales are expected to rise slightly.MONDAY, DECEMBER 14: The capacity utilization rate of Canadian industries will be reported by Statistics Canada. The rate hit a record low of 67.4 per cent in the second quarter of this year.WEDNESDAY, DECEMBER 16: Statistics Canada will report manufacturing sales for October. Sales were up 1.4 per cent in September.

]]>Bobby Ammar wants you to feel at home. Well, not at home, exactly. More like the lobby of a boutique hotel, or an art gallery. Which is extraordinary, really. Because Ammar operates in the dusty business of selling cars. When the new Ericksen Infiniti dealership in Edmonton opened in September, complete with plush leather chairs, wide-screen plasma TV and, says general manager Ammar, “the most expensive cappuccino machine in the city,” it offered a peek into an emerging retail phenomenon—lounging. “We wanted a place where people could pour a latte, sit back and relax.”

Lounging is a reversal of almost everything we’ve come to expect from retail. Over the years, stores perfected the quick sell. Transactions-per-minute became the measure of success, with customers viewed more as commodities than living, breathing souls. Get in, do your business, then get out. But now a host of businesses, like car dealerships, but also dental offices, malls and even banks, want you to stay, take off your jacket and unwind. In a hyper-competitive retail landscape decimated by the recession, businesses are going to remarkable lengths to make you feel comfortable. If the waiting room was once the purgatory of retail, today it’s becoming an indulgence all its own.

Nowhere is this shift more striking than in the staid banking sector. This week, TD Bank officially opened its new concept branch in Brampton, Ont. A key feature is the lounge, where clients and their kids can hang out in big leather chairs. There are computers with games and access to childrens’ websites as well as a beverage machine. The bank is also opening its meeting rooms to community groups. “Historically, it always was an anxious thing for customers to go to their bank,” says Tim Hockey, president and CEO of TD Canada Trust. “This makes you feel warm and comfortable as opposed to thinking ‘Eww, I’m going into a cold sterile bank.’ ”

It wasn’t long ago that banks were doing everything they could to get customers banking online. But when the financial crisis toppled some of the world’s biggest banks, Canadian financial institutions remained strong thanks to their intense focus on retail banking. TD wants to build on that, and is borrowing a page straight from Starbucks. “It’s the concept of the third place,” says Hockey, referring to an idea popularized by Starbucks CEO Howard Schultz. “You’ve got your home, your work; everyone should find a third place where everyone knows your name.”

The idea of spending any more time in a bank than you have to might sound absurd, but it fits with a push by retailers to overhaul their relationships with customers, says John Gustavson, a commercial and retail architect in Vancouver. “They’re trying to break down a lot of the corporate culture and hierarchy that has existed in the past,” he says. The changes also reflect a broader shift in society. The walls between our homes, our work and our shopping trips—even the very concepts of public and private spaces—are vanishing.

Which is why, on a sunny afternoon, you can find crowds hanging out at the Shops at Don Mills, an “outdoor urban village” in Toronto. Dubbed the “anti-mall” when it opened in April, it encompasses a large public area, with a fountain where families routinely gather to play, even if they don’t set foot in the shops. The mall even held several music festivals over the summer. “People want public spaces,” says Alan Gomez, marketing director at Don Mills. “This brings in the community feeling.” Of course, the more time people spend there, the more likely they’ll spend their money, too.

By encouraging people to loiter, retailers hope to foster a deep brand connection.McDonald’s perfected the fast-service model but is outfitting its outlets with TVs, fireplaces and wireless Internet. Burger King plans to do the same. Apple lets you play with its pricey gizmos in its stores (called “experience stores” in retail lingo) with no pressure to buy. Even dental offices have started offering spa treatments and massage chairs.

In some cases, the trend can’t come soon enough. This year Canadian Tire unveiled a new breed of store. In the past, its service garages were known for their dank waiting areas and stiff benches that screamed “get off your butt and buy something.” But David Hicks, vice-president of store design, says retailers now know it’s impossible to force customers to do something they don’t want to. If anything, the retail lounge today is “a decompression area from your shopping experience,” he says. The new Canadian Tire lounges have plush leather chairs, TVs, Internet stations and play areas for children, all surrounded by cultured stone walls and laminate flooring. “We’ve tried to make the waiting areas as comfortable as home,” he says. “[They] look better than my house.”

]]>https://www.macleans.ca/economy/business/sit-back-relax-and-dont-shop/feed/22Contrasting Canadian and U.S. banking, regulationhttps://www.macleans.ca/politics/ottawa/contrasting-canadian-and-us-banking-regulation/
https://www.macleans.ca/politics/ottawa/contrasting-canadian-and-us-banking-regulation/#commentsTue, 07 Apr 2009 14:10:10 +0000http://www2.macleans.ca/?p=48409Reading Andrew Coyne never fails to make me to think harder. His current piece “Our so-called genius banks,” a welcome assault on conventional wisdom, is no exception. After mulling it…

]]>Reading Andrew Coyne never fails to make me to think harder. His current piece “Our so-called genius banks,” a welcome assault on conventional wisdom, is no exception. After mulling it over, though, I don’t buy key parts of my colleague’s bid to debunk the by now familiar story of how, in the financial crisis, Canada’s banking regulation and culture have proven superior to other systems, notably the American alternative.

Andrew calls it a “historical accident—dumb luck, in other words” that U.S. banking policy tilts toward encouraging borrowers, while Canadian regulation leans toward making sure lenders are sound. But wouldn’t that distinction—which of course is grounded in different national histories—be better described as a fundamental contrast in policy aims and regulatory philosophy? It’s no more accidental, dumb, or lucky than any difference in the way the two countries are run.

Largely as result of this particular difference, Canadian regulators have tended to be more assertive. Consider this observation from the New York Review of Book’s Feb. 12 article “How We Were Ruined & What We Can Do”: “[Allan] Greenspan had been given the authority to examine the quality of mortgage lending by Congress in the 1990s, but simply did not use it, pleading free-market principles. The SEC under Bush appointee [Christopher] Cox could have examined the books of investment banks, but again mostly did not bother.” Here in Ottawa, I’ve never heard of Office of the Superindendent of Financial Institutions shrinking from scrutinizing our banks, or the brokerage houses they bought after 1987.

One way in which American banking regulation is more intrusive than the Canadian system is the U.S. federal Community Reinvestment Act, which forces banks to lend in low-income areas. Andrew points to this as a mistake, which perhaps it is, but I haven’t read a persuasive case for the CRA being much of a factor in the subprime meltdown. On the contrary, Businessweek’s Aaron Pressman wrote last fall that the CRA can’t be plausibly blamed, since “50 per cent of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30 per cent were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations.” Pressman went on: “Not surprisingly given the higher degree of supervision, loans made under the CRA program were made in a more responsible way than other subprime loans.”

Andrew cites Washington’s sponsorship of the mortgage giants Freddie Mae and Fannie Mac as another dubious U.S. government intrusion in lending markets that’s not paralleled in Canada. He’s got a point here. Yet it’s worth noting that Freddie and Fannie have been publicly traded companies since 1989, and thus driven by the usual stock market forces. For example, the New York Timesreported on how Fannie’s big plunge into the risky end of the loan market in 2000 “helped supercharge Fannie’s stock price and rewarded top executives with tens of millions of dollars.” The Times concluded that Fannie “was under pressure from Wall Street firms, Congress and company shareholders.” To me, it sounds as if they were driven largely, though not wholly, by the the same distorted incentives as the rest of the subprime circus.

Overall, it seems to me that the broad thrust of Canadian banking regulation, and the resulting banking culture, while hardly perfect, stand up pretty well. As for the idea that what was really wrong in the States was too much regulation, rather than too little—that still looks to me like a stretch.

]]>https://www.macleans.ca/politics/ottawa/contrasting-canadian-and-us-banking-regulation/feed/11You, Sir, are nothing but a bankerhttps://www.macleans.ca/economy/business/you-sir-are-nothing-but-a-banker/
https://www.macleans.ca/economy/business/you-sir-are-nothing-but-a-banker/#commentsFri, 20 Mar 2009 12:00:00 +0000http://tearsheet.ca/dev/?p=2446In politics and in pop culture, money men are the new pariahs.

]]>Forget the black hats; these days the bad guys wear pinstriped suits. At soccer games in Ireland, crowds are reacting to bad calls by labelling the ref “a banker,” instead of the rhyming w-word. The nefarious King Rat was a foreclosing moneylender in the British pantomimes this past Christmas. In the recent thriller The International—tag line “Everybody Pays”—Clive Owen’s cop was on the trail of murderous, arms-dealing financiers. And a sequel to Wall Street, with a recently paroled Gordon Gekko still manipulating markets through a protege, is being rushed into production.

But absolute proof that the global economic meltdown has defined the villains of our age will be available next fall, when an unnamed ABC sitcom, featuring Kelsey Grammer as a fiscal titan whose shrinking circumstances force him to become a househusband, makes its debut. After all, no one plays a pompous ass quite like the former Dr. Frasier Crane.

Booing—or better still, laughing—at the plutocrats who have left investments and retirement savings scraping bottom might be the only relief consumers get. President Barack Obama has become adept at surfing public anger over the $18 billion in bonuses paid to bailed-out bankers in 2008, but there is little he can do beyond promising it won’t happen again. “This time, CEOs won’t be able to use taxpayer money to pad their paycheques or buy fancy drapes or disappear on a private jet,” he told Congress. In the U.K., the anger, and government impotence, is almost identical. The story of the former CEO of the Royal Bank of Scotland—now 95 per cent taxpayer-owned—and his $1.26-million-a-year pension, has been dominating headlines. Sir Fred Goodwin led his bank to the biggest loss in British history. But as the board let him take “early retirement,” rather than firing him, he appears entitled to his compensation. Although Parliament is considering revoking his knighthood.

The public anger—and political hot air—being directed at bankers is hardly a new phenomenon, says Michael Kazin, a U.S. history professor at Georgetown University in Washington. “In America, there’s always been a general suspicion of the financial industry,” he says. “It’s okay to make money if you roll up your sleeves and make something—automobiles, bridges. Just not if you profit from other people’s money.” The emergence of Wall Street as a financial centre more than a century ago gave the nation and world a convenient place to target their rage during bad times. J.P. Morgan, the turn-of-the-century financier, twice saved the U.S. economy from financial ruin. But in his time he was an object of popular ridicule, says Kazin, with newspaper cartoonists regularly depicting his prominent nose as a nugget of gold.

In Canada, the tension between bankers and the public has always been slightly different, says Duncan McDowall, a financial historian at Carleton University. Bêtes noires to political movements during downturns, they have also been recognized as nation-builders during boom times. The less tumultuous relationship is probably due to tighter government regulation—no domestic bank has failed in over a century—although the respect will always be grudging. “In a perverse way the current crisis has improved the image of Canadian bankers,” says McDowall, pointing to the relative strength of our major institutions. “But I don’t think anyone is going to start putting them on T-shirts.”

The Canadian Bankers Association says its research shows the vast majority of Canadians have a “favourable” impression of banks (although the survey didn’t ask about attitudes toward the people who run them). But no one was available to discuss the findings.

In this Great Recession, the biggest difference may be in how the victims see themselves. The attacks centre around what banks have done to “consumers,” rather than “workers,” or other class distinctions, Kazin points out. Perhaps even our perceptions of the industry are changing. In Frank Capra’s classic It’s a Wonderful Life, the commercial banker played by Lionel Barrymore was the heel, and James Stewart’s plucky savings and loan operator the hero. “Some people have argued that following Stewart’s example is what led to the current crisis,” says Karzin. “He gave people homes with very little money down.”

Many solutions have been proposed for the global credit crunch, but the most novel one yet is circulating in an unassuming academic paper that’s been stirring up a lot of buzz. The idea? That businesses create their own backup currency and leave the banks out of it entirely.

The proposal is set out by Bernard Lietaer and his colleagues in “White Paper on the Options for Managing Systemic Bank Crises.” In it, Lietaer, who is currently a research fellow at the Center for Sustainable Resources of the University of California, suggests that if businesses can’t get the money they need from banks, maybe they should lend it to each other instead. For instance, if the banks won’t lend money to HP to buy processors from Intel, then why not create a credit system that lets Intel lend money to HP so it can buy Intel’s chips?

This would create a second currency, but it wouldn’t require paper bills and coins. It could exist electronically, as a network of credits and debits between businesses. Lietaer argues that a backup currency makes a country’s monetary system much more robust and better able to withstand credit crunches like the one we’re having now.

It would be easy to write off Lietaer as an academic dreamer, except for the fact that one country has actually done exactly what he’s suggesting—75 years ago—and it’s working splendidly. That country is Switzerland, and its introduction of the WIR system in 1934 resulted in the most stable monetary system in the world. “The system is still operating today,” he writes in his paper. “The annual volume of business in the WIR currency is now about $2 billion per year.”

Lietaer says the banks could take part if they wished, and he provides compelling reasons for adopting such a system. “This strategy will avoid repeating the worst part of the 1930s scenario . . . which resulted in massive bankruptcies in the productive economy, intolerably high unemployment and untold suffering,” he writes.

Given how well the banks have served us, maybe it’s time to give Lietaer’s idea a try.

Finance minister Jim Flaherty has delivered what sounds suspiciously like an ultimatum to Canada’s banks, to lower lending rates and pump more consumer credit into the system.
It’s understandable enough, but it raises a couple of questions. What evidence does Ottawa have that the banks are refusing to make loans, at reasonable rates, to people who deserve them? And if the ultimatum is “lend or else…” the obvious question is “or else what?”

The banks are clearly approaching full-on rebellion at the Bank of Canada’s strategy to re-inflate the economy (refusing to pass on fthe full impact of interest rate cuts etc.), but it’s not clear how much leverage Ottawa has in this case. The banks are sitting back and refusing to do the things that got us into this mess in the first place. We’re going through a period in which credit is tight for very good reasons. We don’t want or need Ottawa pushing the banks to behave like Citigroup or worse, Wachovia.

The Toronto Star’s James Travers fingers the “brainy, focused and tough” Kevin Lynch, clerk of the Privy Council, as a good candidate to replace Michael Wilson as ambassador to Washington. But he notes there are “flies in this ointment.” One fly: “renewing the civil service, the Sisyphean task that drew Lynch home [from a position at the IMF], remains a work in progress.” (Indeed, being a Sisyphean task, it could hardly be anything but “in progress.” But we really must stop parsing Travers’ metaphors so closely; it leads only to heartache.) Two flies: Lynch led the “usefully inconclusive investigation” into the NAFTA disasta, which is ostensibly why Wilson has to leave in the first place. And three flies: successor boulder-pushers at the PCO “are in short, surprisingly reluctant, supply.”

TheGlobe and Mail’s Jeffrey Simpson + fisheries quotas = barnburner! We kid. It’s a very sober and actually fairly interesting look at the benefits of switching from the “common property resource fishery” model—in which “the government establishes an elaborate system of allocations to fishermen and companies, all under the watchful (?) eye of the Department of Fisheries and Oceans”—to one in which “fishermen, communities, co-operatives or companies” are directly given “ownership rights to certain amounts of fish.” It’s better suited to sustainable fishing, we learn, because it takes politics largely out of the equation in establishing quotas. As it stands, “since people speak, and fish are silent, the minister usually heeds people/constituents and opens fisheries that should remain closed or raises allocations that should remain low.”

The Calgary Herald’s Don Martin isn’t willing to turn the page on Stephen Harper’s altogether extraordinary about-faceon deficits and recessions, and good for him. Because only two scenarios explain how it is that “Harper was elected on a firm promise to deliver balanced-budget, fiscally-prudent government less than 50 days ago”: one, he “fibbed” about the strength of the economy and of the surplus; or two, “he simply failed to see the bad times coming, even with hundreds of fiscal gurus on the payroll and Canada’s best economists on call.” Neither augurs well for our politics or for our pocketbooks. And in any event, as Martin says, it’s now “clear nobody should ever again believe anything anyone says during the heat of an election campaign.”

While he’s embracing deficits, Harper may as well start appointing senators. Things can’t get much more bizarre, as John Ivison observes in the National Post. And there’s no way the government would be able to push through a Senate reform package—term limits, consultative elections, etc.—before all the vacant seats threatened to compromise its own legislative agenda. After all, Ivison observes, “to be an ‘unelected Liberal senator’ to most Conservatives is to belong to an eventide home of political eunuchs, who vent their frustrations by blocking the legitimate work of the House of Commons.” Addressing the problem by stacking the Upper Chamber with Tories, rather than reforming or abolishing the institution, will be difficult for many Canadians to swallow, Ivison predicts. “But it offers yet more confirmation for the adage that governing is the art of the possible—and that in Canada not much is possible.”

Hey, don’t you hate banks? Yeah, Sun Media’s Greg Weston agrees with you. Banks are horrible. They complain about record-low profits that are still 10 figures per quarter, they only pass on a fraction of interest rate cuts to consumers, and now the government’s giving them money to screw us even more! Booooo, banks!

The Toronto Sun’s Peter Worthington thinks we should give David Ahenakew his Order of Canada back, and Allan Eagleson’s while we’re at it, lest the award be reduced to the status of a “purely political pawn, to be awarded or revoked at the whim of whichever government is in power.” Interesting argument. Unfortunately, he has to spend most of the column updating us on Ahenakew’s legal troubles, in a vain attempt to make said argument seem current.

Provincial affairs
The Vancouver Sun’s Vaughn Palmer observes B.C. finance minister Colin Hansen trying to deal with plummeting government revenue outlooks and, more recently, a significant projected slowdown in the provincial economy, and is not overly impressed. The minister was quite specific about what he wouldn’t do about it, Palmer observes. “Deficits? No. Layoffs? He doesn’t anticipate them. Cuts in pay for the public service? No rollbacks. Cuts in health, education and social services? The Liberals will protect those. Olympic venues? Those dollars are already spent.” So what will he do? Well, he’s willing to cut travel and administration expenses. Problem is, “no less a figure than Premier Gordon Campbell scoffed at such easy outs in a recent scrum.”

Still in the Sun, Barbara Yaffe updates us on Alberta’s efforts to soften the oilsands’ image elsewhere in Canada and in Washington, and to convince us that “every Canadian has a stake in this.” For example, the Alberta Enterprise Group will have us know that “the oilsands account for less than a tenth of one per cent of the world’s greenhouse gas emissions,” which is “equivalent to half of what’s put out by Hong Kong.” This strikes us as a very strange point of comparison.

The Globe’s Murray Campbell explores what may be the least interesting angle conceivable to Ontario’s proposed new restrictions on young drivers—most notably on the number of young, unrelated passengers they may carry—which is that outraged teenagers have taken their complaints to Facebook. You could have knocked us over with a feather. In the process, he actually lets transport minister Jim Bradley get away with suggesting the arguments against the legislation—which is itself based on nothing but irrelevant statistics and a wealthy man’s tears—aren’t particularly intelligent.

To those planning to pay no attention to tonight’s Quebec leaders’ debate, the Montreal Gazette’s Don Macpherson has a simple message: things have gotten really interesting all of a sudden for Jean Charest. First there was the latest round of intrigue from the Caisse de dépôt; then “the Liberals released the financial framework for their campaign promises, which was based on optimistic economic assumptions that contradicted Charest’s claim that the province is heading into an economic ‘storm,’ and therefore needs political stability”; and now, Le Journal de Montréal has revealed the finance minister “greatly overestimated the value of private investment projects in Quebec in the economic and financial update she released the day before the election was called.” Intrigue! Excitement! Who are you to deny it?

You’ve changed, Obama
Andrew Cohen, writing in the Ottawa Citizen, argues Hillary Clinton was the wrong choice as secretary of state, and declares himself mystified that she’d accept the job. It’s a mistake for Obama, he argues, because she’s unqualified—or at least, less qualified than a whole bunch of other candidates. And for Clinton herself, he suggests, it’s an abandonment of all she might have done in the Senate. “She might have become the champion of health care (redressing her mishandling of the file in 1993), the green economy and a multilateral foreign policy,” Cohen laments.

“Mr. Obama and the Netroots continue to gaze at each other with honeymoon eyes,” the Globe’s John Ibbitson observes, which is somewhat surprising given that he’s already making pragmatic noises about letting tax cuts on the richest Americans expire, rather than repealing them, and that having “vowed to break up Washington’s old boys’ club,” he’s filling his cabinet with “hands so inside Washington’s ways that they could get jobs as tour guides.”

The Post’s Jonathan Kay assesses George W. Bush’s legacy and concludes that while the glaring mistakes in Afghanistan and Iraq were those of “execution”—i.e., that the endeavours themselves were “morally defensible”—there is no redeeming “Bush’s arrogant evisceration of the English-speaking world’s proud tradition of due process—a project that was done consciously and deliberately with a perfect understanding of the consequences.” Long after Guantanamo closes, he says “that fact will forever stain the man’s legacy.”

]]>How to save banks and start trade warshttps://www.macleans.ca/general/how-to-save-banks-and-start-trade-wars/
https://www.macleans.ca/general/how-to-save-banks-and-start-trade-wars/#commentsTue, 14 Oct 2008 17:37:10 +0000http://macleans.wordpress.com/?p=12688Does anyone else find the following argument scary?Canada’s banks are supremely healthy, best in the world even, and if we don’t throw them a massive taxpayer-funded lifeline right now, …

Canada’s banks are supremely healthy, best in the world even, and if we don’t throw them a massive taxpayer-funded lifeline right now, they’re going to be in serious trouble.

That, in a nutshell, sums up the sentiment being voiced by Finance Minister Jim Flaherty, Canadian bank executives and analysts at the moment. All over the world governments are injecting billions, nay trillions, of dollars to prop up their country’s biggest financial firms. The U.S. is buying $250 billion worth of shares in the likes of Citigroup, J.P. Morgan and Bank of America. Britain is shelling out $65 billion to help Royal Bank of Scotland and Lloyds. France is doing it. Germany is doing it. Even educated Swedes are doing it. The fear now is banks in those countries will be able to borrow funds at lower rates than Canadian banks, and that, in turn, will lead to higher borrowing costs and put Canadian businesses at a competitive disadvantage.

There probably is some truth to that fear. But when the argument for a bailout is no longer about bringing stability to credit markets, and instead is about evening the score with the competition, you’re into dangerous territory. To be fair, Flaherty is far from alone. Countries like Japan and Australia were at first resistant to financial system bailouts but caved so as not to become uncompetitive. Search “bailout” and “competitive disadvantage” in Google News and you’ll get nearly 450 examples of bankers and politicians griping that they need to level the playing field.

This is not just a slippery slope. It’s more akin to standing on Everest and setting off a WMD. How long before a government somewhere extends bailout packages to other industries also hit hard by the global credit crisis, like automakers, steel producers, aircraft manufacturers etc. Other countries will likely respond in kind, lest their industries be put at a competitive disadvantage.

]]>https://www.macleans.ca/general/how-to-save-banks-and-start-trade-wars/feed/8Take it to the bankhttps://www.macleans.ca/politics/ottawa/take-it-to-the-bank/
https://www.macleans.ca/politics/ottawa/take-it-to-the-bank/#commentsThu, 09 Oct 2008 15:14:43 +0000http://macleans.wordpress.com/?p=12112And make sure it’s a Canadian bank. The things are bullet-proof, apparently. I can certainly vouch for the incomparably higher quality of Canadian banks compared to, say, their awful, awful,…

]]>And make sure it’s a Canadian bank. The things are bullet-proof, apparently. I can certainly vouch for the incomparably higher quality of Canadian banks compared to, say, their awful, awful, awful French counterparts.

]]>https://www.macleans.ca/politics/ottawa/take-it-to-the-bank/feed/38RBC will show some guts…maybehttps://www.macleans.ca/general/rbc-will-show-some-gutsmaybe/
https://www.macleans.ca/general/rbc-will-show-some-gutsmaybe/#commentsFri, 26 Sep 2008 13:32:23 +0000http://macleans.wordpress.com/?p=9497I am delighted to see that Gord Nixon is prepared for a little prudent treasure hunting amid the wreckage of the U.S. financial system. This is encouraging in the wake…

]]>I am delighted to see that Gord Nixon is prepared for a little prudent treasure hunting amid the wreckage of the U.S. financial system. This is encouraging in the wake of JP Morgan’s shotgun takeover of Washington mutual last night. JPM takes on an estimated $31 billion in troubled loans, but also gets a hold of America’s biggest savings and loan, reaching almost half of the country’s population, for a mere $1.9 billion. TD was one of several banks that had expressed interest in WaMu, but this big fish goes to the same bank that swallowed Bear Stearns las March at government behest.

]]>In the money: Suncor CEO Rick George puts the rhetorical boots to Barack Obama in today’s Globe. The presidential candidate has proposed restricting imports of “dirty” oil. George says go ahead. “These guys will say a lot of things, but then when they get into office, it’ll end up they’ll do something else,” Mr. George said. “The pragmatic thing is, if they don’t buy crude from Canada, where are they going to buy it?”

Trading down: Who knew General Motors, along with building trucks nobody wants, also builds time machines. The General’s shares have fallen to levels not seen in 34 years, or 53 years (depending on who’s counting). Incidentally GM’s woes have had an interesting side effect. Based on market capitalization Magna International, the Aurora, Ont-based auto parts supplier, at $7.12 billion, is now a bigger company than GM, at $6.47 billion. Of course, since GM is one of Magna’s largest customers, that doesn’t bode well.

Number cruncher: Sure, $140 a barrel oil gets all the attention, but another commodity is breaking records, and the consequences are even more dire. Because of flooding in the U.S. corn futures hit an all-time high of $7.99 a bushel. The price of corn has more than doubled in the last year. Bad news for families around the world. Follow this link for a chart showing corn prices since 2000. For no other reason than pure curiosity I plotted corn against the S&P 500. Stunning.

Boom or gloom: StatsCan says our paychecks are still rising, but after four straight months of pullbacks, Desjardins Group predicts Canada’s economy is headed for a recession. Prognosis: Gloom.

Ticker tape: Mark Mcqueen of Toronto investment firm Wellington Financial thinks Royal Bank and Scotiabank should team up to buy mega Wall-Street bank Citigroup, once the largest company in the world… With prices for everything from gasoline to lipstick going through the roof, bet you didn’t know inflation in Canada only “accelerated slightly” last year, but that’s the way it was according to StatsCan